Brazil’s Inflation Data – July

SAO PAULO (Reuters) – Brazil’s inflation undershot market expectations in July, according to data from the statistics agency IBGE. A monthly drop in food prices provided some relief, although the annual rate remained well above the central bank’s target.

Consumer prices in Latin America’s largest economy rose 0.26% in July, up from 0.24% in June, but below the 0.37% increase forecast by economists polled by Reuters.

Prices increased 5.23% over the last 12 months through July, down from 5.35% in the previous month. Analysts had expected the annual rate to be 5.33%.

In July, Brazil’s central bank suspended its aggressive tightening cycle, which had raised the benchmark interest rate by 450 basis points to nearly a 20-year high of 15% to combat persistent inflation.

Policymakers aim to return inflation to the official 3% target, forecasting that borrowing costs will stay at a “very restrictive” level into next year. Although the target has a tolerance band of plus or minus 1.5 percentage points, the upper end has been exceeded for 10 consecutive months.

Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, remarked that the July figures suggest the restrictive monetary policy is starting to show results, noting that “headline pressures are easing gradually.”

The monthly price rise was primarily driven by increased housing costs, with surging electricity prices. In contrast, food and beverage prices dropped for the second month in a row, alongside decreases in apparel and communication costs.