BRAZIL INFLATION IPCA (Aug/25)   

The IPCA in August registered a decline of -0.11% m/m, above the median of expectations (BBG: -0.15%; Broadcast: -0.16%; BSB Survey: -0.15%) and also above our projection (-0.18%). Over 12 months, the overall index rose 5.13%.

Core average increased +0.30% m/m (Buysidebrazil 0.28% AE: 0.26% BSB Survey: 0.28%), above both our expectations and the market’s, mainly explained by the upside surprise in new automobiles.

The main surprises compared to our forecast came from electricity tariff (-4.21% m/m; +3bps), Food at home (-0.83% m/m; +3bps), and New cars (-0.44% m/m; +2bps), partially offset by Cinema, theater, and concerts (-4.02% m/m; -2bps).

Services (0.39%; +0bp): Among items outside the core group, there were no major surprises except for App-based transportation (3.27% m/m; +1bp), which has shown high volatility. Other relevant items, though unsurprising, were Regular courses (0.80% m/m; 0bp) and Lodging (2.00% m/m; 0bp).

Core services (0.34% m/m; +0bp): The main downside surprise in this group came from Cinema, theater, and concerts (-4.02% m/m; -2bps). This was already included in our risk balance, given the cinema discount week starting on Aug/28. We had expected a smaller impact, as the IPCA collection covered only two days of discounts. Meanwhile, Food away from home (0.50% m/m; 0bp), the heaviest item in this group, showed no surprises after a more volatile performance in the previous month.

Industrial goods (0.18% m/m; +2bps): This group showed the largest upside surprise in this release, mainly due to New cars (-0.44% m/m; +2bps), indicating that the effect of the IPI discount under the Green IPI program was anticipated in July. Clothing (0.72% m/m; +1bp) also contributed to the upside, continuing its volatile trend, especially after reaching its lowest value of the year in July. These upside effects were offset by the decline in Household items (0.09% m/m; -1bp), with a highlight on Televisions (-1.60% m/m; -1bp).

Food at home (-0.83% m/m; +3bps): A broad-based surprise, with highlights including Fruits (-0.57% m/m; +1bp), Tomatoes (-13.39% m/m; -1bp), Poultry and eggs (-0.80% m/m; +1bp), UHT milk (-1.04% m/m; -1bp), and Garlic (-4.77% m/m; +1bp). The group’s standout was the large number of small upside vectors, each contributing less than 1bp.

Administered prices (-0.61% m/m; +2bps): The main surprise was a smaller-than-expected effect of Itaipu’s bonus tariff on electricity tariff (-4.21% m/m; +3bps). However, this was offset by a stronger-than-expected decline in Gasoline (-0.94% m/m; -1bp), likely influenced by a lagged pass-through of Petrobras’ price cut in early June. In addition, Bottled gas (0.42% m/m; +1bp) also showed an upside surprise.

In summary, in terms of quality, August’s IPCA came in somewhat worse than expected for the Core average, both for us and for the market, due to the upside surprise in new automobiles. The downside surprise in Core services was due to a temporary discount in Cinema, and therefore should be less relevant.