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Brazil Inflation August 2023

Brazil: Inflation accelerates to five-month high in August but undershoots expectations

Inflation came in at 4.6% in August, up from July’s 4.0%. August’s result marked the highest inflation rate since March and was markedly above the Central Bank of Brazil (BCB)’s 3.25% target for the year. That said, it came in slightly below market expectations. Looking at the details of the release, the acceleration was largely attributed to housing and utilities prices rising at a quicker pace in August compared to the previous month due to the ending of a one-off energy price discount. In addition, prices for transport rose at a brisker rate of 4.1% year on year—the strongest increase since August 2022. This was partly due to Petroleo Brasileiro (Petrobas) hiking fuel prices on 15 August. These developments more than offset softer price pressures for food and beverages.

Still, the trend pointed down, with annual average inflation falling to 5.1% in August (July: 5.4%).

Finally, consumer prices increased at a seasonally adjusted 0.23% in August over the previous month, accelerating from July’s 0.12% increase. August’s result was the highest since April.

Inflation accelerating for the second consecutive month in August did not deter the BCB from cutting interest rates by an additional 50 basis points at its September meeting. Inflation will likely increase further in the coming months, bolstered by higher Bolsa Família welfare payments, which will spur domestic demand.

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