Brazil's annual inflation eased to 4.44% in July, returning to the central bank's target range. Despite the impact of monetary policy, the central bank sees inflation as demand-driven, signaling a need for continued restrictive policy.
The return of inflation to Brazil's target range provides some relief, but the central bank's continued view of demand-driven inflation suggests a cautious approach to further rate cuts, impacting economic growth prospects.
Brazil's annual inflation eased in July, returning to the central bank's target range as the effects of tight monetary policy continued to filter through the economy. Consumer prices rose 4.44% in the 12 months through July, down from 4.44% in June, according to data from statistics agency IBGE.
The reading placed inflation back within the central bank's target range, centered on 3% with a 1.5 percentage point tolerance band, after two months above the target. The central bank cut its benchmark rate by 25 basis points to 14.00% earlier this month for a fourth consecutive meeting, leaving its next steps open.
Pantheon Macroeconomics' chief Latin America economist Andres Abadia noted that while inflation has shown signs of easing, a lasting convergence toward the central bank's 3% target is unlikely before 2027, with inflation projected to end this year above the target range. On a monthly basis, consumer prices rose 0.07% in July, slowing from 0.16% in June, but slightly above the 0.03% increase forecast by economists.
Higher housing costs, led by electricity prices, were partly offset by a decline in food and beverage prices, which fell 0.67% during the month. The central bank previously stated that restrictive monetary policy is increasingly weighing on economic activity, but inflation remains demand-driven, requiring continued restrictive interest rates.