Brazil’s mid-month consumer price index fell for the first time in two years in August, owing primarily to lower energy costs, according to official statistics released on Tuesday.
The IPCA-15 indicator dipped 0.14% in the month to mid-August, according to the national statistics agency IBGE, reversing a 0.33% advance in July.
The economists polled by Reuters predicted a 0.19% decline.
It was the first negative monthly figure since July 2023, highlighting the effect of rising borrowing costs and one-time energy adjustments on domestic pricing.
Electricity discount leads to price retreat
Housing expenses were the primary driver of the overall drop, with electricity rates decreasing dramatically due to a temporary discount related to the Itaipu hydroelectric dam’s results.
IBGE highlighted that the initiative significantly reduced household energy prices, countering pressures in other areas of the economy.
Other categories also experienced modification. Food and beverage prices, which are regularly scrutinised for their impact on household budgets, fell in the past month.
Transport and communication expenses also fell, contributing to the overall easing of consumer prices.
Broad-based declines across key spending groups
Four of the nine groups polled by IBGE reported declines in mid-August, topped by Housing, which declined 1.13% due to lower electricity bills.
Communication decreased by 0.17%, while food and beverages fell by 0.53% and transportation fell by 0.47%. The remaining categories experienced minor rises, ranging from a 0.03% increase in household items to a 1.09% increase in personal spending.
Food and beverages fell for the third consecutive month, led by a 1.02% reduction in the home food segment. Prices for essentials fell sharply, with mangoes falling 20.99%, potatoes 18.77%, onions 13.83%, and tomatoes 7.71%.
Rice prices declined 3.12%, and meat costs fell 0.94%, relieving some of the strain on household budgets.
Transportation prices also fell, dropping 0.47% in August after rising 0.67% in July. The slump was led by a 2.59% drop in airfares, followed by 1.32% drops in new car prices and 1.14% in fuel.
Other fuels also contributed to the reduction, with ethanol falling 1.98%, gasoline down 0.25%, and diesel oil down 0.20%.
In August, the Personal costs group (1.09%) was the primary driver of price increases, affected by the gambling adjustment (11.45%), which had been in force since July 9. This subitem alone had the highest beneficial influence in August, contributing 0.05 percentage points.
According to local media outlet G1, Caixa Loterias ticket prices rose in July. The price increases impacted Dupla Sena, Quina, Lotofácil, Mega-Sena, Loteca, and Super Sete.
According to Caixa Econômica Federal, the increase is intended to extend awards and boost social transfers.
Inflation drops to below 5%
On an annual basis, inflation fell to 4.95% in mid-August, from 5.30% in July. The result was somewhat higher than the Reuters poll’s median prediction of 4.91%, but it was the first time the annual figure slipped below 5% since February.
The drop moved headline inflation closer to the central bank’s target of 3%, plus or minus 1.5 percentage points. With the upper bound set at 4.5%, the August figure is somewhat higher but reflects progress in containing consumer prices following a period of persistent inflationary pressure.
Policy impact and outlook
The reduction in inflation comes while Brazil’s central bank keeps interest rates near a two-decade high.
In July, authorities interrupted a tightening cycle that had added 450 basis points to the benchmark Selic rate, raising it to 15%, the highest level since July 2006.
The robust campaign has been key to efforts to stabilise inflation expectations and return consumer prices to target.
The most recent reading, while impacted by temporary energy measures, suggests that restrictive monetary policy is cooling demand and slowing price growth.
Brazil’s mid-August inflation figure marks a turning point following months of strong pricing pressures. The IPCA-15 has declined for the first time in two years, and annual inflation has fallen below 5%, giving the central bank some breathing room in its policy stance.
However, the long-term viability of this relief will be determined by how fundamental price dynamics evolve when temporary factors like energy discounts disappear.
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