Fuel prices drive inflation up in mid-August

The IPCA-15, Brazil's mid-month inflation index compiled by the Brazilian Institute of Geography and Statistics (IBGE), was 0.19 percent in August, in line with market expectations.

As in July, it was again transport costs that boosted the index increase by 0.83 percent in the first half of the month and accounted for the majority of the August result at 0.17 percentage points.

Petrol prices at the pump rose by 3.33 percent. Fuel alone accounts for about a third of the IPCA-15. In contrast, ticket prices slowed by 4.63 percent, after airfares rose by 19.21 percent in the previous month due to the school holidays.

Prices for education (+0.75 percent) and household goods (+0.71 percent) also contributed to the final result in August. On a positive note, however, food prices fell for the second month in a row, this time by 0.8 percent. Prices for household food fell even more (-1.30 percent) than in July (-0.70 percent).

The August decline pushed the 12-month rate down to 4.35 percent from 4.45 percent in July. However, the rate remains close to this year's target cap of 4.5 percent.

As we showed on Monday, inflation expectations for the end of 2024 continue to rise, even if they slowed in August, according to the latest Focus Report, a weekly survey by the central bank of the highest-rated investment firms.

Analysts' median forecast is for inflation to reach 4.25 percent by the end of 2024, as they expect the Brazilian economy to grow faster than expected and fiscal targets may not be met.

Within just four weeks, the median GDP forecast for 2024 rose from 2.19 to 2.43 percent.