Brazil: Inflation wanes to four-month low in January
Latest reading: Inflation inched down to 4.6% in January, following December’s 4.8%. January’s result marked the lowest inflation rate since September 2024, and was in line with market expectations. Looking at the details of the release, the slowdown was largely due to one-off energy credits cheapening electricity bills: Housing and utilities prices dropped in January. Moreover, prices for food and beverages grew at a more moderate rate. That said, inflation overshot the Central Bank (BCB)’s 1.5–4.5% tolerance band for a fourth consecutive month; robust domestic demand and a weaker Brazilian real have undermined recent efforts from the Central Bank (BCB) to tame inflation with aggressive interest rate hikes.
The trend was unchanged, with annual average inflation coming in at December’s 4.4% in January. Meanwhile, core inflation edged down to 3.7% in January from the previous month’s 3.9%.
Lastly, consumer prices rose a seasonally adjusted 0.16% in January over the previous month, below the 0.52% rise seen in December. January’s result marked the softest rise in prices since August 2024.
Outlook: Our Consensus is for average inflation to peak in Q2, and then to slightly ease in Q3–Q4 as the BCB aggressively tightens monetary policy and subsequently hits domestic demand as well as supporting the real by widening the interest rate against the U.S. Fed. Overall in 2025, our panelists expect inflation to pick up from last year, marginally surpassing the Central Bank’s tolerance band. Upside pressures include a strong labor market plus the government’s expansionary fiscal policy and minimum-wage policies.
Our panelists do not expect inflation to return to the 3.0% midpoint of the BCB’s target before the end of our forecast horizon in 2029. Extreme weather and its impact on electricity and food prices is a key risk.