Data released in early February showed Brazil’s annual inflation rate edged up in January to 4.44% over the prior 12 months, compared with 4.26% in December. The reading was broadly in line with market expectations, narrowly exceeding the median Reuters poll projection of 4.43%.
On a monthly basis, consumer prices increased 0.33% in January, barely different from the 0.32% outcome that economists had anticipated in the same poll. The national statistics agency said transportation costs were the main force behind the month’s rise, pointing specifically to higher fuel prices as a key driver.
Those figures remain within the central bank’s formal target range. The bank aims for inflation of 3.0% with a tolerance band of plus or minus 1.5 percentage points, and policymakers have emphasised caution, maintaining a hawkish public posture to steer inflation back toward the midpoint of the target.
At its most recent policy decision, the central bank left the benchmark Selic rate unchanged at 15%, a level near a two-decade high. Meeting minutes released by the bank signalled that officials expect to begin reducing interest rates in March.
Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, said he now anticipates an initial 50 basis-point cut and projects the Selic rate will finish 2026 at 12.0%. Abadia noted that tight financial conditions have been constraining both activity and inflation, but he argued that elevated public debt levels and the slow process of re-anchoring expectations justify keeping real interest rates in restrictive territory.
The confluence of a modest uptick in the annual inflation rate, a near-term projection for rate cuts by the central bank, and ongoing concerns about fiscal metrics and expectations creates a mixed backdrop for markets and the broader economy. Transportation and energy-related segments remain directly sensitive to the recent price movements, while financial conditions and monetary policy expectations will influence borrowing costs and investment decisions more broadly.
Note on scope: The article reports the published inflation figures for January, the central bank's policy stance as reflected in recent minutes, and comments from a named economist. It does not introduce additional data or projections beyond those contained in the reported sources.