Brazil's mid-month consumer price index IPCA-15 fell 0.40% in August, reversing a 0.06% gain in July, the national statistics institute IBGE reported on Tuesday. The 12-month rate slowed to 4.24% from 4.52% in July, marking the first time it has fallen below the central bank's target ceiling since April.
The inflation target is set at 3% with a tolerance range of plus or minus 1.5 percentage points. A Reuters poll had forecast a monthly decline of 0.30% and a 12-month increase of 4.34%, while the latest Focus survey projected full-year IPCA inflation at 5.02%.
The August reading was driven by declines in housing, food and transport costs. Housing prices fell 1.41% after a 0.97% rise in July, largely due to a 6.25% drop in residential electricity prices following the incorporation of the Itaipu bonus. Food and beverages declined 0.57%, with at-home food prices down 0.97%. Notable food price decreases included tomatoes (-27.38%), potatoes (-25.14%), carrots (-17.05%) and ground coffee (-2.31%).
Transport costs dropped 1.0% after a 0.11% rise in July, with airline tickets falling 13.30% and fuels down 1.43%. Ethanol prices declined 3.63%, gasoline 1.23% and diesel oil 0.71%. Services inflation slowed to 0.07% from 0.41% in July, primarily reflecting the drop in airline ticket prices.
The central bank's monetary policy committee has reduced the benchmark Selic rate by 0.25 percentage point at each of its last four meetings, bringing it to 14.00% per year. The August energy tariff flag was set at yellow, adding an extra cost of R$ 1,885 per 100 kWh consumed.
Analysts noted that while the surprise in the August reading was concentrated in volatile items, the underlying trend remains favorable. Leonardo Costa, economist at ASA, said core inflation measures came in better than expected. Pablo Spyer, council member at Ancord, cautioned that the result is positive but it is too early to declare victory over inflation, as the true test will be whether disinflation persists without seasonal or temporary effects.
