Brazilian inflation is expected to have declined in November to its lowest in over a year, according to a Reuters poll, though the underlying pressures remain high.
This slowdown is a reversal from the earlier months of 2024, when easing was feeble, and headline inflation had reached its highest level since February 2023.
Analysts expect the 12-month inflation through November to have moderated to 4.49%, from 4.68% in October.
The prediction is lowest since September 2024, when inflation was at 4.42%, and sees the number a fraction beneath the top end of the central bank’s target corridor of 3%, with an allowable band of 1.5 percentage points on both sides.
It has benefited from the orthodox monetary stance of the central bank and the strengthening of the Brazilian real. Over the course of the year, both of these factors have really helped to temper consumer price trends.
However, the energy and service costs have been persistent and have limited wider disinflation.
Monthly inflation is seen accelerating
While the yearly rate is forecast to fall, monthly inflation is projected to rise. Analysts expect a 0.20% increase in November, compared to 0.09% in October. Official data is due to be released on Wednesday.
According to Barclays analysts, the monthly acceleration is due to higher electricity prices as well as rising accommodation and transport expenditures associated with the COP-30 Climate Summit, which took place last month in the northern city of Belem.
The event appears to have contributed to localised price rises, which exacerbated short-term pressures.
Inflation in the service sector continued to be a major worry. Strong labour-market conditions have boosted demand in the industry, with unemployment falling to a historic low in October.
According to Barclays, core services inflation is anticipated to remain at 0.33% month on month, the same as in October.
In year-on-year terms, it is expected to have slowed slightly to 6.03% from 6.31% the previous month. Although this implies some relief, the level remains high, which is keeping policymakers on guard.
Central bank maintains cautious stance
Brazilian monetary authorities want to closely monitor services inflation.
Although some policymakers believe the economy’s steady improvement will reduce price pressures in the near term, they are cautious about jumping to conclusions.
Inflation expectations still decline but slowly. The central bank’s cautious approach is also due to this gradual adjustment.
Banco Central do Brasil is set to keep its benchmark interest rate at 15% for its Dec. 10th meeting, according to a Reuters poll.
The bank’s determination to maintain tight monetary conditions would be communicated, with a hint of a potential rate drop in the next quarter.
The simultaneous cooling of inflation and steady policy reinforces the conundrum officials find themselves in.
While headline numbers do move closer to the target range, core components continue to show residual strength in some categories, which makes this complicated to achieve.
Political implications for Lula
The inflation trend may provide a small electoral boost to President Luiz Inacio Lula da Silva.
If consumer prices conclude 2025 below the top target level of 4.50%, as predicted by a central bank weekly survey of economists, Lula might claim credit for stabilising buying power over his tenure.
For the time being, the November statistics will be an important indicator for policymakers and markets.
Continued reduction of headline inflation would boost confidence in the central bank’s plan, but the persistence of core components would emphasise the remaining hurdles.
As Brazil approaches the new year, the interaction of decreasing economic activity, shifting expectations, and sector-specific pressures will define the inflation trajectory and future policy actions.
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