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2mo ago

Brazil Inflation Slows Monthly but 12‑Month Rate Tops Central Bank Ceiling

May's IPCA reading keeps annual inflation above the 4.5% tolerance and raises the risk that the central bank will delay cuts to interest rates.

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Overview

  • The IBGE reported that the IPCA rose 0.58% in May and reached 4.72% over the past 12 months, putting the rate above the Central Bank’s 4.5% tolerance band.
  • Food and residential electricity were the main upward drivers in May, with food and beverages up 1.33% and electricity up 3.67% due to tariff changes and the yellow tariff flag.
  • Transport registered deflation in May as fuels fell, while the INPC—used for low‑income wage and benefit adjustments—rose 0.65% in May and stands at 4.42% in 12 months, increasing pressure on pay negotiations and benefits.
  • The May surprise to market forecasts increases the chance that policymakers will keep the policy rate high rather than cut it, with market references noting the Selic near the 14.5% area.
  • Real activity shows strains that complicate policy choices: CNI data show a modest 0.5% month‑on‑month rise in manufacturing turnover in April but a 2.5% drop year‑to‑date, signaling weaker demand that could slow inflation over time.