Brazil inflation slows to 4.4% in July, fuels rate cut bets

Brazil's annual inflation rate eased to 4.4% in July, the lowest since February 2021, data from the national statistics agency IBGE showed on Friday.

The consumer price index (IPCA) rose 0.12% month-on-month, below market forecasts of a 0.25% increase. Core inflation, which excludes volatile food and energy prices, also softened to 4.76% year-on-year from 5.07% in June.

The deceleration follows a series of monetary tightening measures by the central bank, which raised the benchmark Selic rate to 10.50% in June. Analysts now expect the bank to begin cutting rates as early as September, citing improving price dynamics and a slowing economy.

The Brazilian real strengthened 0.3% against the U.S. dollar following the release, reflecting reduced inflation concerns. Economists polled by Reuters had projected July inflation at 4.52% year-on-year.

The central bank's next policy meeting is scheduled for August 2, where policymakers will assess the inflation trajectory and economic activity. Market pricing suggests a 50 basis point rate cut is possible by year-end, with further easing likely in 2025 if disinflation persists.

The data reinforces the view that Brazil's inflation cycle has peaked, though risks remain from food prices and geopolitical factors affecting energy costs.