Brazil's official inflation fell 0.32% in August, after a 0.07% rise in July, the national statistics agency IBGE reported on Friday (11). It was the sharpest monthly drop since August 2022, when prices fell 0.36%. For household budgets, a monthly basket worth R$ 1,000 ended about R$ 3 cheaper.

What drove the drop

The electricity bill did the heavy lifting: residential power got 7.63% cheaper with the Itaipu bonus, a discount that returned surplus revenue from the state-owned hydroelectric plant to consumers, worth about R$ 15 on a R$ 200 bill. Housing costs fell 1.87% as a result. "This result for the Housing group is the lowest for an August since the Real Plan," the 1994 stabilization program, said IBGE researcher José Fernando Pereira Gonçalves.

Food and drinks (-0.34%) fell for a third straight month: potatoes got almost 20% cheaper, and tomatoes, onions and carrots dropped more than 10%. Eggs fell 4.15% and ground coffee 1.86%. In transport (-0.86%), airfares sank 13.17%, ethanol 3.95% and gasoline 0.59%.

So far this year prices are up 3.11%; over 12 months, up 4.22%, down from 4.44% through July and inside the tolerance band of the official target. The target, set by the National Monetary Council, is 3%, with a band from 1.5% to 4.5%. In grocery terms, a shopping run that cost R$ 500 a year ago runs about R$ 521 today.

In plain terms: the IPCA, the index behind these numbers, tracks 377 goods and services bought by families earning 1 to 40 minimum wages, across ten metropolitan areas, Brasília and five state capitals. Deflation means the average of that basket fell, not that everything got cheaper: according to Agência Brasil, 54% of the surveyed items still rose in price in August, up from 50% in July.

Interest rates in view

The reading came in below forecasts: the Focus bulletin, the central bank's weekly poll of market analysts, expected a 0.23% drop. According to the newspaper O Globo, the deflation raises the odds of another cut to the Selic, the benchmark rate that anchors loan and financing costs, next week. Even so, analysts still see inflation at 5% by the end of 2026, above the 4.5% ceiling.

The relief may not last: the Itaipu bonus applied only to August bills. "We do not know what the final result will be, but we know the index tends to rise," said IBGE analyst Fernando Gonçalves.