Brazil's services sector shrank 0.1% in August after a flat July, missing analysts' forecast of 0.4% growth, the IBGE reported Wednesday. The data reinforces signs that Latin America's largest economy is losing momentum.
At the same time, US consumer prices accelerated in September. The CPI rose 0.6% on the month and 3.7% year-over-year, up from 3.4% in August. Gasoline accounted for more than half the monthly increase. Core inflation, excluding food and energy, also picked up on an annual basis.
The external constraint
The Federal Reserve's policy path now looms larger for Brazil. If US inflation proves sticky, the Fed may hold rates higher for longer or even resume hiking. Higher dollar yields attract capital, pressuring emerging-market currencies including the real.
A weaker real raises the cost of imported goods and inputs for Brazilian firms. Some of that pressure can pass through to consumers, depending on competition and demand conditions. Markets adjust ahead of Fed decisions, so the mere prospect of tighter US policy can tighten financial conditions in Brazil before any rate move occurs.
Domestic policy calculus
The Monetary Policy Committee (Copom) cut the Selic to 13.75% in September, acknowledging gradual activity moderation but flagging a tight labor market, above-target inflation expectations, and external uncertainties. The committee's next steps depend on how these factors reshape the domestic inflation outlook.
A temporary dollar spike has different implications than a sustained depreciation that resets cost structures and re-anchors expectations. Conversely, a sharper demand slowdown could offset some pass-through.
Outlook
For households and firms awaiting cheaper credit, the message is clear: economic deceleration may coexist with elevated interest rates. Further cuts require sustained disinflation even as external pressures persist.