Brazil’s annual inflation rate likely eased further in December, according to a Reuters poll, marking the second consecutive month below the upper limit of the central bank’s target range.
The Banco Central do Brasil targets annual inflation of 3%, with a tolerance band of plus or minus 1.5 percentage points. In November, inflation had already slipped below the 4.5% upper bound for the first time since September 2024, reflecting the impact of the central bank’s restrictive monetary policy.
December slowdown and policy implications
If confirmed by official data due on Friday, December’s moderation could intensify political pressure for interest rate cuts from President Luiz Inacio Lula da Silva, who is seeking re-election in October. However, policymakers focused on achieving the more challenging 3% target are expected to remain cautious until clearer disinflation trends emerge.
The median estimate from 20 economists surveyed by Reuters points to annual inflation slowing to 4.30% in December, from 4.46% in November.
According to Flavio Serrano, chief economist at Banco BMG, food prices are projected to have risen just 1.5% in 2025, while services inflation likely closed the year with a 6.0% increase. Serrano noted that a tight labor market remains the main driver behind persistent services inflation throughout the year.
Labor market strength versus weaker growth
Brazil’s unemployment rate fell in the three months through November to its lowest level since the current data series began in 2012. This strength contrasts with other indicators pointing to a broader economic slowdown.
On a monthly basis, consumer prices are expected to have accelerated to 0.35% in December, up from 0.18% in November, reflecting seasonal pressures.
Rate cut expectations build
Rodolpho Sartori, an economist at Austin Rating, said unregulated prices and services inflation, influenced by year-end seasonality, are likely to be the main contributors to higher monthly inflation.
Policymakers are also monitoring inflation expectations, which have been declining gradually and currently point to around 4% inflation by the end of 2026, according to the central bank’s latest weekly survey.
Last month, Brazil’s central bank held interest rates at a near two-decade high for the fourth consecutive meeting. While maintaining a hawkish stance, subtle shifts in its forward guidance suggest a possible move toward easing later this year.
The central bank’s next policy meeting is scheduled for January 28. Most economists surveyed by Reuters expect rates to remain unchanged again, with the first cut likely in March.
