Cooling inflation strengthens bets on another Brazil rate cut
EWZ•Brazil inflation cools more than expected in August
Brazil's annual inflation slowed more than expected in August as consumer prices posted their steepest monthly decline in four years, strengthening the case for the central bank to deliver another interest rate cut next week.
The IPCA consumer price index rose 4.22% in the 12 months through August, data from statistics agency IBGE showed on Friday, easing from 4.44% in July and coming in below the 4.27% forecast in a Reuters poll of economists.
Consumer prices fell 0.32% in August from the previous month, compared with market expectations for a 0.29% decline, marking the lowest monthly reading since August 2022.
Annual inflation remains within the central bank's target range of 3% plus or minus 1.5 percentage points.
Economists see another 25-basis-point cut, not faster easing
Pantheon Macroeconomics' Chief Latin America Economist Andres Abadia said that August's report strengthens the case for another 25-bps interest rate cut next week but not for a faster pace of easing.
"Headline inflation fell further and some underlying pressures softened, but much of the monthly weakness came from temporary declines in electricity and fresh-food prices," he noted.
Rate cut expectations firm ahead of next week's policy meeting
Policymakers will meet for an interest rate decision next week after delivering four consecutive 25-basis-point cuts that lowered the benchmark Selic rate to 14%, although Brazil's real rates remain among the highest in the world.
"Despite the sharp increase in oil prices in recent weeks, the latest soft inflation figures alongside weakening momentum in the economy support the case for Brazil's central bank to deliver another interest rate cut at its meeting next week, from 14.00% to 13.75%," said Liam Peach, senior emerging markets economist at Capital Economics.
