Brazilian CPI Falls 0.32% in August

Brazil's official consumer price index, the IPCA, fell 0.32% in August, according to data released by the statistics agency IBGE. The decline marked the largest monthly deflation in four years, since August 2022, and was deeper than the market forecast of a 0.28% drop.

The monthly print reinforced expectations for the Central Bank of Brazil to cut the benchmark Selic rate by 0.25 percentage points at the upcoming Copom meeting. The Selic currently stands at 14% per year.

A primary driver was residential electricity prices, which plunged 7.63% following a credit distributed from the Itaipu hydroelectric plant. It was the steepest August decline for electricity since the launch of the real in July 1994. Airfares dropped 13.17%, while gasoline declined 0.59%.

The food and beverage group recorded its third consecutive monthly drop, falling 0.34%, with food consumed at home decreasing 0.61%. Key food price declines included potatoes (-19.89%), carrots (-11.22%), onions (-11.07%), tomatoes (-10.94%), eggs (-4.15%), and ground coffee (-1.86%).

Economists note risks ahead as seasonal price patterns, the end of the Itaipu utility rebate, and potential weather impacts from El Niño may pressure food costs. Bank C6 projects Brazil's economic growth at 1.7% in 2027, near its full productive capacity, while consultants at 4intelligence expect food items to exit deflation in September.