Brazil’s inflation rate slowed down more than expected at the end 2025. The annual rate is now back in the target range, and expectations are that the government may consider a monetary ease.
IBGE, the national statistics agency, released data on Friday that showed an annual inflation rate of 4.26%. This was below the market’s expectations as well as the earlier forecasts by the Central Bank.
The central bank stated in July that the inflation rate would be above the upper limit of its target range, which is 4.5% by the first quarter 2026.
In fact, the consumer price index returned earlier to its target range than expected.
Brazil’s inflation target is 3% with a range plus or minus 1,5 percentage points.
This goal has been a struggle for the country over the last five years. It was only achieved once before, in 2023.
In this context, 2025’s outcome indicates a significant shift in the inflation dynamics.
Data from December can be a pleasant surprise
In December, the disinflationary tendency gained momentum with inflation annual coming in lower than expected.
The reading for December was below the forecast of 4.3% by Reuters and the estimate published by central bank a few months earlier.
In December, consumer prices increased by 0.33% compared to the previous month. Analysts had predicted a 0.35% increase, but the actual result was slightly lower.
The softer reading for the year reinforced the belief that the inflationary pressures will ease under the current framework.
In its previous projections, when the central bank released them, it had indicated a better near-term outlook for inflation, improved inflation expectations and lower gas prices.
A stronger currency, lower oil prices and a tightening of interest rates were all factors that contributed to these developments.
The tight monetary policy begins to yield results
Brazil’s central banks raised its benchmark Selic by cumulatively 450 basis point before stopping the tightening cycle.
As policymakers tried to combat persistent inflationary pressures, the series of rate increases brought it to 15%.
The central bank’s hawkish attitude has not changed since it stopped raising rates.
Officials have stressed that interest rates need to be kept at restrictive levels to maintain inflation near the middle of the target range.
However, recent inflation figures may change this position.
The market participants are increasingly pricing in the likelihood that the next move by the government will be to cut rates.
According to the median prediction of the weekly central bank survey, the first cut will occur in March. However, some analysts believe that an easing phase could begin at the policy meeting on January 27-28.
This article Brazil inflation slower than expected strengthens case for rate reductions appeared first on The ICD
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