Brazil: Inflation declines to five-month low in July
Latest reading: Inflation eased for a second consecutive month in July, coming in at 5.2% from June’s 5.4%. July’s figure marked the lowest inflation rate since February and notably undershot market expectations, though it remained above the Central Bank’s 1.5–4.5% tolerance band for the tenth month running. Looking at the details of the release, the moderation was largely due to a softer increase in transport prices. Conversely, prices for food and beverages and for housing and utilities rose at quicker paces in July than in June.
Still, the trend pointed up, with annual average inflation rising to 5.0% in July (June: 4.9%). Meanwhile, core inflation was steady, coming in at June’s 5.4% in July.
Lastly, consumer prices increased 0.26% month on month in July, up from June’s 0.24% rise.
Outlook: Our Consensus is for inflation to remain close to July’s level in August–September and to slowly trend down through Q4 2026. That said, our panelists see inflation remaining above the Central Bank’s 1.5–4.5% tolerance band until Q2 2026, as the full impact of interest rate increases trickles down to the real economy and cools domestic demand and price growth in turn.
Overall in 2025, inflation will hit a three-year high, with a robust labor market will exerting upward pressure on wage growth. Upside risks stem from extreme weather hurting food and energy production. The impact of the government’s fiscal policy is a factor to track.