Brazil’s mid-month inflation print pulled in two directions at once. The IPCA-15 index rose 0.32 percent in the month to mid-October, IBGE said on Friday, down from 0.70 percent in the previous month and below the 0.43 percent increase economists had forecast in a Reuters poll. Over 12 months, prices rose 4.62 percent, up from 4.47 percent but below the 4.73 percent forecast. That 12-month figure sits above the top of the central bank’s tolerance band, which targets 3 percent inflation plus or minus 1.5 percentage points, so the ceiling is 4.5 percent.
The composition was food-led. Food and beverage prices rose 0.88 percent in the month and personal expenses climbed 0.55 percent, while housing costs eased 0.1 percent. Reuters reported that easing core inflation strengthens the case for further rate cuts, and the central bank has kept its options open ahead of its next meeting while pointing to firmer signs of an economic slowdown.
The policy setting is an easing cycle running into an election. The Banco Central do Brasil delivered a fifth consecutive 25 basis point cut last month, taking the Selic rate to 13.75 percent, and policymakers meet again on November 3 to 4. The data landed days before a tight presidential runoff between Senator Flavio Bolsonaro, who led the first round, and incumbent President Luiz Inacio Lula da Silva. Pantheon’s chief Latin America economist, Andres Abadia, told Reuters that the runoff is an important risk because fiscal credibility remains a concern, which is the channel through which the election reaches the rate path: a softer monthly print argues for another cut, and a 12-month rate above the ceiling argues for care about what the next government does to the deficit.