Consumer prices ease in Brazil, leaving room for central bank to cut

Consumer prices in Brazil eased a tad giving the monetary authority room to lower policy rates, according to economists, especially if Brasilia approved pensions reforms next month.

In non-adjusted terms, the country's IPCA-15 consumer price gauge rose by 0.35% month-on-month in August and by 2.7% year-on-year, according to IBGE.

That was a slightly lower pace of annual price increases than the 2.8% clip observed during the prior month.

August's prints were exactly as expected by economists.

Dearer transport fares and housing accounted for the increase in prices versus July, with the latter rising by 1.4% on the month as the cost of gasoline and ethanol jumped 6%.

Housing prices meanwhile increased by 1.0%, as electricity tariffs rose by 4.3%.

For Andres Abadia, senior international economist at Pantheon Macroeconomics, price pressures in South America's largest economy were under wraps, meaning that interest rates were set to fall, especially if Congress approved a reform of the country's pensions in the next few months (possibly as soon as September).

Global risks were a threat, he admitted, but the fundamentals of the country's currency "suggested" it could remain "relatively resilient" to sharp risk-off events.

"Looking ahead, headline inflation will edge higher over the coming months, but the weakness of the labor market, favorable base effects, and the stable BRL all suggest that the inflation rate will hover around only 3%. With inflation low, political risks in check—at least for now—and recent progress on the fiscal front, we think the BCB will cut rates to 7.25% by the end of the year."