Brazil: Inflation falls in December
Latest reading: Inflation edged down to 4.8% in December, following November’s 4.9%. The print was in line with market expectations, but overshot the Central Bank (BCB)’s 1.5–4.5% tolerance band for a third month running. Looking at the details of the release, the moderation was primarily driven by slower increases in prices for housing and utilities. The opposite was true for food and transport prices.
Still, the trend pointed up, with annual average inflation rising to 4.4% in December (November: 4.3%). Accordingly, overall inflation in 2024 overshot the Bank’s 3.0% target, but was within its tolerance band. Meanwhile, core inflation edged down to 3.9% in December from the previous month’s 4.0%.
Lastly, consumer prices increased a seasonally adjusted 0.52% in December over the previous month, picking up from the 0.39% increase logged in November.
Outlook: Our Consensus is for inflation to remain roughly similar to 2024 in 2025, at the upper bound of the Bank’s tolerance range. On the one hand, price pressures will be fanned by a strong labor market, and strong public spending amid the government’s expansionary fiscal policy. On the other hand, price pressures will be contained by a new and aggressive monetary policy tightening cycle and a stronger real versus the U.S. dollar.
Inflation is not expected to return to the Bank’s 3.0% target until after 2029. Extreme weather pushing up electricity and food prices is an upside risk.