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Brazil Inflation July 2023

Brazil: Inflation increases in July

Inflation came in at 4.0% in July, up from June’s 3.2%. July’s result was markedly above the Central Bank of Brazil (BCB)’s 3.25% target for the year and overshot market expectations of a 3.9% increase. Looking at the details of the release, the acceleration was largely due to housing prices rising at a slightly quicker pace in July compared to the previous month. Moreover, prices for transport grew 0.3% year on year, swinging from a 5.7% annual decline the prior month. The increase was due to the reinstatement of a federal tax on fuels. These developments more than offset easing price pressures for food and beverages.

Still, the trend pointed down, with annual average inflation coming in at 5.4% in July (June: 5.9%).

Finally, consumer prices rose a seasonally adjusted 0.12% in July over the previous month, contrasting June’s 0.08% drop.

In August, state-controlled oil company Petrolero Brasileiro hiked gas and diesel prices by 16% and 26%, respectively. Higher fuel prices, coupled with the start of the BCB’s loosening cycle in early August, will likely see inflation revert its recent downward path and pick up in the remainder of H2 2023, missing the Central Bank’s target for the year. That said, a pickup in inflation in the coming months is unlikely to deter the BCB from cutting rates further, though the Bank is likely to rule out cuts larger than 50 basis points.

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