Brazil’s Inflation Slows Further in December, Staying Within Target
Brazil’s Inflation Slows Further in December, Staying Within Target
Inflation Trends
Brazil’s annual inflation rate eased again in December 2025, according to a Reuters poll, marking the second consecutive month that consumer prices remained below the central bank’s upper tolerance limit. The benchmark IPCA consumer price index is expected to show growth of around 4.4% year‑on‑year, down from earlier highs.
Central Bank Target
The Banco Central do Brasil sets an inflation goal of 3%, with a tolerance margin of ±1.5 percentage points. This means inflation is considered under control if it falls between 1.5% and 4.5%. December’s reading, at roughly 4.4%, places the rate just inside the acceptable band, reinforcing confidence in the bank’s monetary policy.
Key Drivers
• Transport costs: Higher airfares contributed to December’s modest price increases.
• Energy bills: Electricity costs stabilized after sharp declines in November, when surcharges linked to drought conditions were reduced.
• Consumer spending: Seasonal discounts that softened prices in November eased, leading to slightly firmer inflation in December.
Policy Implications
The slowdown strengthens expectations that the central bank may consider interest rate cuts in 2026, after maintaining high borrowing costs to tame inflation. Lower inflation supports consumer purchasing power, though sluggish labor demand and external risks—such as oil prices and currency volatility—remain challenges.
Outlook
With inflation now below the ceiling for two months, Brazil’s economy appears to be entering a more stable phase. Policymakers will continue balancing growth and price stability, but the latest figures suggest progress in controlling inflation while opening the door to more accommodative monetary policy in the year ahead.
Inflation Trends
Brazil’s annual inflation rate eased again in December 2025, according to a Reuters poll, marking the second consecutive month that consumer prices remained below the central bank’s upper tolerance limit. The benchmark IPCA consumer price index is expected to show growth of around 4.4% year‑on‑year, down from earlier highs.
Central Bank Target
The Banco Central do Brasil sets an inflation goal of 3%, with a tolerance margin of ±1.5 percentage points. This means inflation is considered under control if it falls between 1.5% and 4.5%. December’s reading, at roughly 4.4%, places the rate just inside the acceptable band, reinforcing confidence in the bank’s monetary policy.
Key Drivers
• Transport costs: Higher airfares contributed to December’s modest price increases.
• Energy bills: Electricity costs stabilized after sharp declines in November, when surcharges linked to drought conditions were reduced.
• Consumer spending: Seasonal discounts that softened prices in November eased, leading to slightly firmer inflation in December.
Policy Implications
The slowdown strengthens expectations that the central bank may consider interest rate cuts in 2026, after maintaining high borrowing costs to tame inflation. Lower inflation supports consumer purchasing power, though sluggish labor demand and external risks—such as oil prices and currency volatility—remain challenges.
Outlook
With inflation now below the ceiling for two months, Brazil’s economy appears to be entering a more stable phase. Policymakers will continue balancing growth and price stability, but the latest figures suggest progress in controlling inflation while opening the door to more accommodative monetary policy in the year ahead.