December slowdown may spur calls for rate cutsCentral bank expected to maintain high rates till March<\/p>\n
Jan 8 (Reuters) – Brazil’s annual inflation rate likely slowed further in December, a Reuters poll showed, falling further below the upper limit of the central bank’s target range for a second month in a row.<\/p>\n
Banco Central do Brasil’s goal for the IPCA consumer price index growth is 3%, with a tolerance margin of plus or minus 1.5 percentage points.<\/p>\n
Sign up here.<\/a><\/p>\n In November, the yearly rate had dropped under the upper bound of 4.50% for the first time since September 2024 due to the central bank’s tight policy stance.<\/p>\n DECEMBER SLOWDOWN MAY SPUR MORE CALLS FOR RATE CUTSIf confirmed by official data due on Friday, December’s slowdown may lead to calls for more interest rate cuts<\/a> from President Luiz Inacio Lula da Silva, who is seeking reelection in October.<\/p>\n But policymakers focused on reaching the more difficult 3% central bank target are likely to maintain a cautious tone until disinflation trends become more evident in coming months.<\/p>\n The annual rate of increase in consumer prices probably decelerated to 4.30% in December from 4.46% in November, according to the median estimate of 20 economists polled over the last two weeks.<\/p>\n “In our projections, food prices should have closed last year with an increase of only 1.5% and services with a 6.0% rise,” said Flavio Serrano, chief economist at Banco BMG.<\/p>\n “We see the tight labor market as the main reason behind this worsening of services inflation throughout 2025,” he added.<\/p>\n Brazil’s unemployment rate fell in the three months to November to its lowest since the current data series began in 2012, in contrast to other indicators reflecting a weaker economy<\/a>.<\/p>\n On the month, consumer prices are expected to have quickened to 0.35% in December from 0.18% in November.<\/p>\n RATE CUT EXPECTED IN MARCH, SEPARATE SURVEY SHOWED<\/p>\n “An acceleration of unregulated prices, given end-of-year seasonality, along with services, should be the main contributors to higher monthly inflation,” said Rodolpho Sartori, an economist at Austin Rating.<\/p>\n Besides the still-elevated trajectory of services prices, policymakers are also looking at slowly declining inflation expectations currently pointing to a 4% rate by the end of 2026, according to the latest weekly central bank survey.<\/p>\n Last month, the central bank held interest rates<\/a> at a nearly two-decade high for a fourth meeting. While the bank has kept a hawkish tone, subtle changes in forward guidance may indicate a likely shift to policy easing soon.<\/p>\n The central bank’s next meeting is on January 28. A majority of economists said last month in a separate Reuters survey they expected the bank to stand pat again, before delivering a rate cut in March when the second meeting of the year takes place.<\/p>\n Reporting and polling by Gabriel Burin; Editing by Ross Finley and Bernadette Baum<\/p>\n Our Standards: The Thomson Reuters Trust Principles., opens new tab<\/a><\/p>\n