Brazil’s inflation slowed more than anticipated at the end of 2025, bringing the annual rate back within the official target range and reinforcing expectations that monetary easing may be considered.
Data released on Friday by the statistics agency IBGE showed annual inflation at 4.26%, below both market expectations and the central bank’s earlier projections.
In July, the central bank had indicated that inflation would remain above 4.5%—the upper bound of its target range—by the end of the first quarter of 2026.
Instead, consumer price growth returned to the target band earlier than projected.
Brazil has an inflation target of 3%, with a tolerance range of plus or minus 1.5 percentage points.
The country has struggled to meet this goal over the past five years, achieving it only once previously, in 2023.
Against that backdrop, the 2025 outcome points to a notable shift in inflation dynamics.
December data contribute to a good surprise
The disinflationary trend gained pace in December, with annual inflation coming in below expectations.
The December reading was lower than the 4.3% forecast by Reuters economists and the 4.4% estimate published by the central bank a month earlier.
Consumer prices rose 0.33% month over month in December. While slightly below the 0.35% expected by analysts, the increase marked an acceleration from the 0.18% recorded in November.
Even so, the softer annual reading reinforced confidence that inflationary pressures are easing under the current policy framework.
When it released its earlier projections, the central bank had pointed to a more favourable near-term inflation outlook, improving inflation expectations, and lower gasoline prices.
These developments were supported by a stronger currency and lower oil prices, occurring alongside a period of tight interest rates.
Tight monetary stance begins to pay off
Brazil’s central bank raised the benchmark Selic rate by a cumulative 450 basis points before pausing its tightening cycle in July.
The series of increases pushed the policy rate to 15%, near a two-decade high, as policymakers sought to curb persistent inflationary pressures.
Since halting rate hikes, the central bank has maintained a hawkish stance.
Officials have repeatedly stressed the need to keep interest rates at restrictive levels for an extended period to ensure inflation moves toward the midpoint of the target range.
Recent inflation data, however, may challenge that position.
Market participants have increasingly priced in the possibility that the next policy move will be a rate cut.
The median forecast from the central bank’s weekly survey of economists points to a first reduction in March, while some analysts see scope for an easing cycle to begin as early as the January 27–28 policy meeting.
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