SAO PAULO, March 12 (Reuters) – Brazil’s 12-month inflation slowed in February to its lowest level in almost two years, official data showed on Thursday, potentially paving the way for the central bank to kick off an easing cycle next week despite the recent spike in oil prices.
Annual inflation in Latin America’s largest economy eased to 3.81% last month, statistics agency IBGE said, the lowest reading since April 2024 and down from 4.44% in January. Still, it was above the 3.77% that economists polled by Reuters had expected.
On a monthly basis, consumer prices as measured by the IPCA index were up 0.70%, more than forecasts for a 0.65% increase, driven mainly by higher education and transportation costs.
The figures were released ahead of the central bank’s March 17-18 monetary policy meeting. The authority targets inflation at 3%, plus or minus 1.5 percentage points.
Board members signaled in January that they would begin an interest rate-cutting cycle this month after holding the Selic rate at 15%, a near two-decade high, for several months in a bid to tame persistent inflation.
MARKETS SPLIT ON RATE DECISION
Soaring energy prices due to the U.S.-Israeli conflict with Iran, however, have pushed investors in recent days to revise expectations for the next rate decision, with markets split between a 25 basis point and 50 bp cut.
Some economists even believe the start of the rate-cutting cycle could be postponed.
“This IPCA reading is slightly more pressured due to the Middle East conflicts, with the impact on oil prices creating a bias toward holding interest rates,” said Banco Daycoval economist Julio Barros, who nonetheless still expects a 25 bp reduction.
Capital Economics’ senior emerging markets economist Liam Peach, on the other hand, said the annual inflation drop in February may tip the balance in favor of a 50 bp cut.
“The recent global energy price moves add a lot of uncertainty,” he said. “Still, with real interest rates very high and the real, so far, holding up well, we think an interest rate cut is more likely than not.”
Brazil’s government is set to unveil later on Thursday measures aimed at reducing the impact of recent international oil price swings on local diesel prices.
(Reporting by Gabriel Araujo; Editing by Kirsten Donovan)
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