Brazil inflation slows to 4.5% in July, hits central bank target

Brazil's annual inflation rate slowed to 4.5% in July, returning to the central bank's target range for the first time in 16 months, official data showed on Friday.

The consumer price index, as measured by the Brazilian Institute of Geography and Statistics (IBGE), fell from 4.7% in June, marking the lowest reading since March 2023. The deceleration was driven by lower food and beverage prices, which rose 4.3% year-on-year, down from 4.7% in June, and reduced fuel costs.

Economists polled by Reuters had expected inflation to ease to 4.4%, citing continued normalization in agricultural commodity prices and weaker domestic demand. Core inflation, which excludes volatile food and energy prices, also moderated to 4.1% from 4.3% in June, signaling broad-based disinflationary pressures.

The central bank has maintained its benchmark Selic rate at 10.50% since September 2023, balancing inflation concerns with efforts to support economic growth. Policymakers have emphasized the need for caution, noting that while inflation is trending toward the target, risks from global commodity markets and fiscal policy remain.

The July data reinforces expectations that the central bank may hold rates steady at its next meeting in September, though futures markets continue to price in a potential easing cycle by year-end. The real strengthened 0.3% against the dollar following the release, reflecting investor confidence in Brazil's inflation trajectory.