Brazil Economics: Softer inflation allows for a cut in August

Research evidence excerpt

Brazil Economics: Softer inflation allows for a cut in August

15 July 2026

Economics

Brazil Brazil Economics

Softer inflation allows for a cut in August

◆ Inflation prospects have improved notably in recent weeks Daniel Lavarda

Head of Brazil Economics Research

◆ Stronger food disinflation and delayed El Niño impact are Banco HSBC S.A.

daniel.lavarda@hsbc.com

leading us to revise our short-term forecasts for IPCA +55 11 2802 2640

◆ We now expect an additional 25bp rate cut on 5 August, with

YE2026 Selic rate at 14.00% (down from 14.25%, previously)

Short-term inflation has surprised to the downside. Notably, the June IPCA print

showed sharper food disinflation and a generally benign composition, as core

inflation measures also fell substantially versus the previous months’ average (see

our June IPCA: Wow!, 10 June). Overall, Brazil is following a disinflation trend led by

energy prices, which in many ways is analogous to other countries. Unlike in those

countries, however, this process has also been helped by the sharp downturn in food

inflation components, and has not been fully captured by private price surveys.

This sharp food disinflation trend leads us to revise our forecasts. Exhibit 1

below shows the changes to our IPCA scenario. In the near term, revisions have

been concentrated in August and reflect what we see as a more prolonged period of

food deflation. Towards yearend, additional adjustments to our monthly forecasts are

linked to the delayed impact of the El Niño phenomenon, as the country is currently

experiencing favorable rainfall despite the still-negative climate outlook for 2H26.

We now expect IPCA inflation of 4.9% y-o-y in 2026 (from 5.2%). Although this

improvement is driven by more volatile items in the IPCA basket, we think the more