Brazil's October Inflation Eases as Senate Prepares Fiscal Adjustment Vote

In October 2026, Brazil's inflation rate notably slowed to 0.14%, a significant drop from September's 0.82%, supported primarily by lower electricity costs due to the adoption of the green tariff flag and reduced transportation prices. The Brazilian Institute of Geography and Statistics (IBGE) reported that the National Consumer Price Index (IPCA) over the past 12 months rose to 4.63%, surpassing the government's 3% target and marking the second consecutive month above the upper inflation tolerance limit of 4.5% set by the National Monetary Council. Despite this easing, market forecasts project inflation to end the year at 5.22%, while the Ministry of Finance expects 4.9% for 2026. The housing segment experienced the largest price decline at -0.51%, influenced by a 1.92% reduction in residential electricity prices, while transportation costs fell by 0.59%, the greatest drop in October since 1994. Conversely, food and beverage prices increased by 1.04%, driven by staples like tomatoes and onions. The Selic interest rate remains high at 13.75% as a key inflation control mechanism.

Amid these inflation trends, the Brazilian Senate is poised to vote on a fiscal adjustment bill intended to reduce federal expenditures and contain inflationary pressures in 2027. The proposed legislation aims to cap federal spending growth at 2% in 2027, potentially saving between R$ 50 billion and R$ 60 billion. Key components include revising tax incentives by implementing a 10% cut in exemptions and tightening the use of tax credits, alongside recalibrating health spending calculations by excluding extraordinary oil and gas revenues from minimum required expenditures. The government targets achieving a primary surplus of 0.5% of GDP (R$ 73.2 billion) next year. However, the Senate's vote was temporarily suspended due to opposition senators' demands for more deliberation time, with the session potentially resuming the following week. Senate President Davi Alcolumbre emphasized the importance of balancing societal needs with fiscal responsibility.

These developments together highlight Brazil's efforts to balance controlling inflation while implementing fiscal discipline as it approaches 2027.