For many years Brazil has had a bad reputation among international investors regarding inflation. It has always been high versus the rest of the world, and in the last ten years there was one-point when annual inflation was consistently 11 percent or more. There was a time in the last 30 years that annual inflation was 22%. Inflation in the 1990’s was so bad that people would rush to cash their paychecks before prices went up. For many years inflation defined Brazil.
This is not the situation today.
For July 2025, Brazil announced .26% monthly inflation, versus a consensus estimate of .37%. The annual inflation rate was 5.23%, which was down from the month before and better than consensus of 5.33%. These are good numbers.
It is important to realize that these were the lowest annual inflation numbers in five months. The annual rate announced in January was 4.56%. The rate went as high as 5.53% in April, and then went down. Given US policy uncertainties since tariff announcement in April, it would not have been unreasonable to see inflation go above the high points of 5.53%. At first glance there are good reasons for inflation to go up, such as excessive government borrowing, but it did not.
Inflation levels, both present and forward looking, are key for currency and bond yields. Higher inflation makes Brazilian goods more expensive, so investors will demand a quasi-discount on the currency. Regarding bonds, higher inflation leads to higher interest rates as investors require a high return to compensate for the risk of inflation eating away at the return.
Brazil’s inflation success has shown itself in the currency which has appreciated 12% versus the US dollar year to date. Brazilian 52-week yields have gone from 15.48% at the beginning of the year to 14.57% now.
It is possible that the US dollar’s value will decline in the months ahead on account of structural problems like excessive borrowings, and waning trust in policies and data. Any one of these issues can chisel away at confidence in the US dollar. Also, a Fed interest rate cut, which looks increasingly probable, will probably lower the price of the US dollar.
So, in sum, Brazil is a country controlling inflation better than expectations, which seems to be expressing limited currency risk against the US dollar, and high interest rates on short-term sovereign debt. This is about as good as it gets.
Put another way, fundamentals supporting the Brazilian Real are better than fundamentals supporting the US dollar.
Investors working on-chain can take advantage of this situation by buying tokenized bonds that can be used for yield pick-up versus dollars, staking, or providing them to a pool. One possibility is Etherfuse’s Brazilian Tesouro which yields 13.9%, a yield that can be supercharged by supplying to a pool.
This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.
