By Gabriel Burin
Jan 8 (Reuters) – Brazil’s annual inflation rate likely slowed further in December, a Reuters poll showed, falling further below the upper limit of the central bank’s target range for a second month in a row.
Banco Central do Brasil’s goal for the IPCA consumer price index growth is 3%, with a tolerance margin of plus or minus 1.5 percentage points.
In November, the yearly rate had dropped under the upper bound of 4.50% for the first time since September 2024 due to the central bank’s tight policy stance.
DECEMBER SLOWDOWN MAY SPUR MORE CALLS FOR RATE CUTS
If confirmed by official data due on Friday, December’s slowdown may lead to calls for more interest rate cuts from President Luiz Inacio Lula da Silva, who is seeking reelection in October.
But policymakers focused on reaching the more difficult 3% central bank target are likely to maintain a cautious tone until disinflation trends become more evident in coming months.
The annual rate of increase in consumer prices probably decelerated to 4.30% in December from 4.46% in November, according to the median estimate of 20 economists polled over the last two weeks.
“In our projections, food prices should have closed last year with an increase of only 1.5% and services with a 6.0% rise,” said Flavio Serrano, chief economist at Banco BMG.
“We see the tight labor market as the main reason behind this worsening of services inflation throughout 2025,” he added.
Brazil’s unemployment rate fell in the three months to November to its lowest since the current data series began in 2012, in contrast to other indicators reflecting a weaker economy.
On the month, consumer prices are expected to have quickened to 0.35% in December from 0.18% in November.
RATE CUT EXPECTED IN MARCH, SEPARATE SURVEY SHOWED
“An acceleration of unregulated prices, given end-of-year seasonality, along with services, should be the main contributors to higher monthly inflation,” said Rodolpho Sartori, an economist at Austin Rating.
Besides the still-elevated trajectory of services prices, policymakers are also looking at slowly declining inflation expectations currently pointing to a 4% rate by the end of 2026, according to the latest weekly central bank survey.
Last month, the central bank held interest rates at a nearly two-decade high for a fourth meeting. While the bank has kept a hawkish tone, subtle changes in forward guidance may indicate a likely shift to policy easing soon.
The central bank’s next meeting is on January 28. A majority of economists said last month in a separate Reuters survey they expected the bank to stand pat again, before delivering a rate cut in March when the second meeting of the year takes place.
(Reporting and polling by Gabriel Burin; Editing by Ross Finley and Bernadette Baum)
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