Inflation shock: Brazil's June IPCA hits lowest level since 2023

June's IPCA landed where no one expected — 0.16%, less than half the median of market projections and below even the floor of the estimate range surveyed by Valor Data, which ran from 0.24% to 0.37%. The reading, released by IBGE this Friday, is the lowest for the month of June since 2023, when the index posted outright deflation. Over twelve months, accumulated inflation eased from 4.72% to 4.64%, also surprising a consensus that had pointed to 4.80%. The market reaction was immediate: Ibovespa futures printed fresh highs right at the open, breaking above 177,600 points, while the dollar traded lower and interest-rate futures retreated, easing part of the pressure on a curve that had been squeezed by canceled Treasury auctions and by the geopolitical escalation in the Middle East.

The disinflationary surprise is welcome at a moment when the external backdrop is pushing the other way. The war between the U.S. and Iran — which over the past week included 90 American strikes on Iranian infrastructure and retaliatory drone and missile attacks against bases in Qatar, Bahrain, and Kuwait — has kept the Strait of Hormuz, through which 20% of global oil and gas flows, operating well below normal capacity since late February. Even so, Brent slid more than 2% on Thursday to around US$75 a barrel, signaling that markets are still pricing in a de-escalation. In Brazil, the conflict has direct implications: the government announced it will postpone the removal of the gasoline subsidy — whose fiscal cost runs at R$2.4 billion a month — until the external picture stabilizes, according to Finance Minister Dario Durigan. At the same time, the Chamber of Foreign Trade extended for another 60 days the 12% export tax on crude oil, a measure that hits producers' cash flow directly and has been criticized by analysts and industry players.

Russia added another layer of pressure by banning diesel exports through the end of the month. Brazil, the second-largest importer of Russian diesel, could feel the impact if the ban drags on, at a time when global fuel inventories are already tight amid the conflicts. The agricultural sector, the top domestic consumer of diesel, is watching the situation nervously — especially since it is still negotiating a rural debt restructuring with the government. Minister Durigan confirmed that a provisional measure will be published by next week, carrying interest rates of up to 12% a year and terms of up to ten years, at an estimated fiscal cost of R$2 billion to R$3 billion per year. The farm caucus is pushing for more generous terms, including preferential rates for producers hit by climate losses — a negotiation that lays bare the ongoing tension between the Lula administration and its rural parliamentary base.

On the trade front with Washington, the scenario is approaching a decisive moment. U.S. Trade Representative Jamieson Greer said a decision on the tariffs the U.S. intends to impose on Brazil under Section 301 will come "very soon," acknowledging that the two countries still differ on trade practices. The prospect of a 37.5% rate is hanging over Brazilian exporters on the eve of the investigation's conclusion. Amcham Brasil, CNI, and the U.S. Chamber of Commerce sent a joint letter to both governments calling for a short-term agreement to avert the tariff hike, in a rare instance of bilateral institutional convergence. The Senate, for its part, has already approved an additional R$15 billion for the Plano Brasil Soberano to finance exporters affected by geopolitical tensions — a signal that Brasília is bracing for the worst. Against a backdrop that blends tariff risk with U.S. midterm elections in November, HSBC has built a short position in the real against the Mexican peso, betting that domestic electoral risk will weigh on the Brazilian currency in the near term.

There are, however, data points that push back against the pessimism. First-half FX flows were the strongest since 2018, with net inflows of US$17.78 billion, according to the Central Bank — a reflection of the combination of high real rates and a sizable trade surplus. The Ibovespa closed Thursday's session up 1.22% at 172,740 points, with the dollar retreating to R$5.12. The IMF revised its Brazil growth forecast upward, even as it cut the global projection from 3.1% to 3%, flagging risks from the Middle East conflict, trade fragmentation, and a possible correction in expectations around artificial intelligence.

In the oil sector, the week was marked by two moves of significant regional reach. Bolivia confirmed that it will begin technical talks with Petrobras, whose ADRs trade on the NYSE, on the possible return of the Brazilian state-owned company to exploration and production in the country, as well as assistance in restructuring YPFB — a sign that La Paz, faced with the accelerating decline of its gas output, recognizes it needs Brazilian operational expertise. Meanwhile, Petrobras, ExxonMobil, and TechnipFMC have joined forces before Cade in an attempt to block or impose restrictions on the merger between Subsea7 and Saipem, which would create a global heavyweight in offshore exploration infrastructure services — a deal with direct implications for the bargaining power of contractors in the pre-salt.

The ongoing tax reform reveals another silent bottleneck: according to an analysis published by Folha, the real battleground is not the IBS or CBS rate, but companies' technological capacity to adapt their tax systems to the new architecture. The gulf between tax and IT departments at Brazilian companies could turn the transition period into an underestimated operational risk. In parallel, the infrastructure sector has become the main engine of the domestic capital markets in a year when the IPO window remains shut: sector companies are preparing follow-ons of around R$11 billion on B3, while total volume raised in equity offerings in 2026 stands at its lowest level in at least a decade.

Next week will concentrate the most relevant catalysts for Brazilian assets: the USTR's decision on Section 301 tariffs, the publication of the provisional measure on rural debt, the definition of the timeline for removing the gasoline subsidy, and any signal on the Middle East conflict. The positive IPCA surprise gives the Central Bank and the Treasury a modest degree of relief — but it does not resolve the structural tensions that continue to accumulate along the long end of the curve.

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**Vale (NYSE: VALE)** — CVM opened a proceeding to investigate a possible irregularity in the resignation of the chairman of the board of directors, Daniel Stieler,