Brazil recorded a slowdown in annual inflation in February, official statistics released on Thursday showed, lowering the 12-month consumer price increase to 3.81% from January's 4.44%. The figure is the weakest 12-month reading since April 2024 but slightly above the 3.77% median forecast from economists polled by Reuters.
On a month-on-month basis, the IPCA index rose 0.70% in February, outpacing expectations for a 0.65% increase. The monthly gain was driven mainly by higher education and transportation costs, according to the statistics agency IBGE.
The timing of the print is notable: the central bank's monetary policy committee is due to meet on March 17-18. The authority maintains an inflation target of 3%, with an allowed margin of plus or minus 1.5 percentage points. Policymakers had signaled in January an intention to begin lowering the Selic rate this month after keeping it at 15% for several months - a level described as a near two-decade high - to subdue persistent inflation.
Recent developments in global energy markets have complicated the path to easing. Soaring energy prices tied to the U.S.-Israeli conflict with Iran have prompted traders and investors in recent days to revise expectations about the initial rate cut. Market participants are split between a 25 basis point and a 50 basis point reduction at the upcoming meeting, and some economists say the start of the easing cycle could be delayed.
Commenting on the release, Banco Daycoval economist Julio Barros said the February IPCA showed slightly greater pressure because of the Middle East conflicts and the effect on oil prices - a dynamic that creates a bias toward keeping rates unchanged. Barros, however, still expects a 25 basis point cut.
By contrast, Capital Economics senior emerging markets economist Liam Peach argued that the drop in annual inflation in February might shift the balance toward a larger 50 basis point cut. He cautioned that recent global energy price moves introduce substantial uncertainty, but added that with real interest rates currently very high and the Brazilian real holding up so far, an interest rate reduction is "more likely than not."
Separately, the Brazilian government planned to announce later on Thursday a set of measures intended to blunt the pass-through of international oil price swings to domestic diesel prices. Those steps aim to contain the local impact of global energy volatility.
Taken together, the data and comments from economists suggest policymakers must weigh domestic disinflation against external price shocks when deciding both the timing and scale of the first cut in the policy cycle. The decision will have implications for borrowing costs, financial markets, and sectors sensitive to fuel and transport costs.