Introduction to Brazil’s Inflation Rate
Brazil’s annual inflation rate has slowed down more than expected, according to data from the statistics agency IBGE. The inflation rate ended 2025 at 4.26%, which is within the official target range. This is a positive surprise for the central bank, which had predicted that inflation would remain above 4.5% until the end of the first quarter of 2026.
What Led to the Slowdown in Inflation?
The central bank had warned that inflation would remain high due to various factors. However, consumer prices returned to the target range in November, earlier than expected. This is attributed to a more benign short-term inflation trend, improved expectations, and cheaper fuel driven by a stronger currency and lower oil prices. The central bank had also implemented a restrictive interest-rate environment, which helped to slow down inflation.
Impact of Interest Rates
The central bank had increased the benchmark Selic rate by 450 basis points to 15%, a near two-decade high, to combat inflation. However, since July, policymakers have maintained a hawkish tone, stressing the need to keep rates steady to bring inflation to the target’s midpoint. The median forecast in a weekly central bank survey of economists points to a first rate cut in March, although some economists believe an easing cycle could start at the January 27-28 meeting.
Expert Opinion
Kimberley Sperrfechter, an emerging markets economist at Capital Economics, said that the latest inflation data "leaves the door just about open to an interest rate cut" later this month. She added that whether the first cut comes this month or in March, rates are likely to come down further than is widely anticipated.
Monthly Inflation Rate
In December, consumer prices in Brazil rose 0.33%, slightly below the 0.35% expected by economists. This is an acceleration from the 0.18% increase in November. The inflation rate has been slowing down, and this trend is expected to continue.
Conclusion
The slowdown in Brazil’s inflation rate is a positive development for the country’s economy. The central bank’s decision to keep interest rates steady has helped to bring inflation under control. With the inflation rate within the target range, the central bank is likely to cut interest rates in the near future. This could lead to further economic growth and development in Brazil. Overall, the latest inflation data is a positive sign for the Brazilian economy, and it will be interesting to see how the central bank responds to this development.
