Weekly Report 136
✅ In the United States, inflation continued to show signs of moderation amid the ongoing federal shutdown. The headline index rose 0.31% MoM (versus 0.38% in August) and the core advanced 0.23% MoM (from 0.35%), both below expectations. Core goods declined, reflecting slower price increases for new and used vehicles as well as lower variations in apparel and household appliances. In services, there was a significant easing, with notable relief in shelter and transportation, especially airfares and auto insurance, offsetting mild gains in medical and recreational services. From a monetary policy perspective, the data reinforce a more benign inflation trajectory, alongside a continued slowdown in the labor market. We therefore expect the Fed to lower the policy rate by 25 bps at next week’s meeting, continuing the gradual easing cycle initiated in September.
✅ On the geopolitical front, trade tensions have once again dominated the global agenda, with developments centered on China and Canada. Regarding China, Washington is considering new restrictions on exports of products that contain or use US-origin software, in retaliation for Beijing’s curbs on rare-earth exports. Presidents Trump and Xi Jinping are scheduled to meet on the 30th, during the APEC summit in South Korea, in an attempt to extend the tariff truce and advance bilateral commitments. Concerning Canada, Trump suspended trade negotiations after criticism from Ontario’s government over US tariff policy, heightening uncertainty around a bilateral relationship worth nearly USD 1 trillion annually. In the diplomatic sphere, expectations are rising that President Lula will meet with Trump on Sunday, although the US government has not yet officially confirmed the encounter.
✅ In Brazil, inflation remains on a moderating path, reinforcing the outlook for gradual yet consistent easing in price pressures. The October IPCA-15 increased 0.18% MoM, below both our forecast and the market median (0.21% MoM). The downside surprise was broad-based across components, with notable contributions from airfares and auto insurance, which drove the slowdown in services and core measures. On annual metrics, the deceleration of the headline index and the average of core measures reinforces a picture of moderate inflation, albeit still above target. On monetary policy, the more constructive tone of recent communications, combined with ongoing inflation moderation, greater exchange-rate stability, and credible monetary management, reinforces our expectation that the Central Bank will begin its easing cycle in January 2026, maintaining a restrictive stance until then to ensure full convergence of inflation to the target.
