Brazil's central bank chief says inflation decreasing due to low-cost imports from China

Brazil's central bank president, Gabriel Galipolo, said on Monday that China is exporting "disinflation or even deflation" to Brazil through a surge in low-cost imports, easing inflation.

Speaking at an economics forum in Sao Paulo, Galipolo said Brazilian imports from China have grown while their prices have fallen, easing inflation in the short term but reflecting deeper imbalances in global trade.

"It is, in a sense, offsetting an impact that would otherwise be even greater, both for the current account deficit and for inflation," he said.

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Disinflation refers to a slowdown in the pace of price increases, while deflation means an outright fall in prices, both seen by economists as signs of weakening demand that can discourage investment and spending and hurt growth even as prices drop.

Galipolo's remarks came as Brazilian officials confront the effects of what economists describe as China's industrial oversupply.

After years of relying on property construction to fuel growth, Beijing has shifted investment into manufacturing.

Factories producing cars, batteries, steel and textiles now exceed domestic demand, pushing Chinese firms to sell abroad at sharply lower prices.

For Brazil, the trend has a double edge. Cheaper goods from China help restrain inflation, allowing the central bank to keep interest rates stable, but they also undercut local manufacturers that struggle to compete on price.

One response has been the so-called "blouse tax", introduced in 2024. For years, international purchases under US$50 were exempt from import duties.

That rule encouraged millions of small shipments from Asian shopping platforms such as Shein, AliExpress, Shopee and Temu, which could deliver directly to Brazilian consumers without paying tax.

Under the new system, even low-value imports are taxed at 20 per cent, plus a state value-added tax of about 17 per cent.

The government said the measure was designed to level the playing field for domestic retailers and increase revenue. Critics argued it would make online goods unaffordable for low-income buyers.

The change forced major e-commerce firms to adapt. Shopee, which is based in Singapore but backed by Chinese investment through technology giant Tencent, built 14 distribution centres across Brazil and now sources most of its sales from local sellers.

AliExpress, part of China's Alibaba Group, which also owns the South China Morning Post, formed a partnership with Brazilian retailer Magazine Luiza, combining Chinese products with domestic logistics.

Temu, operated by China's PDD Holdings, began allowing Brazilian merchants to sell through its platform to shorten delivery times and avoid customs duties.

Shein, another Chinese fast-fashion platform, had pledged to produce most of its clothing in Brazil by 2026 but faced difficulties after its local manufacturing partner suspended operations.

It has since shifted focus to hosting Brazilian fashion sellers on its platform rather than producing directly.

The "blouse tax" has become a political battle in Congress. Some lawmakers have called for restoring the exemption for small purchases, saying it penalises poorer consumers.

Industry groups have pushed for higher rates, claiming the 20 per cent duty is too low to protect domestic factories.

Finance Minister Fernando Haddad has defended the import tax as a tool for fiscal balance and fair competition, saying it helps protect domestic retailers without fuelling inflation.

Vice-President and Industry Minister Geraldo Alckmin went even further. Seeking to shield local factories from a wave of cheap imports, he backed quotas on Chinese steel and announced that tariffs on electric vehicles will rise to 35 per cent by 2026.

During an official visit to Beijing in June last year, he urged Chinese carmakers to expand production in Brazil, arguing that foreign investment and local assembly are preferable to a surge of low-priced imports that bypass the domestic industry.

The debate exposes a divide inside the government between financial stability and industrial protection.

The central bank sees China's falling export prices as an external ally in controlling inflation. Economic ministries view them as a long-term risk to Brazilian jobs and investment.

Galipolo's predecessor, Roberto Campos Neto, was one of the first central bankers to warn that "China is exporting deflation".

Brazilian Finance Minister Fernando Haddad says the import tax is a tool for fair competition. Photo: AP alt=Brazilian Finance Minister Fernando Haddad says the import tax is a tool for fair competition. Photo: AP>

In early 2024, he said falling Chinese export prices were helping to cool Brazil's inflation in goods while the cost of services remained high.

He argued that the external disinflation was masking domestic inflationary pressures and cautioned that if China's growth model changed, Brazil could face renewed price shocks.

The current central bank president expanded on that idea, saying the surge in online shopping and instant payments shows how Chinese e-commerce platforms continue to influence Brazil's domestic demand.

During Black Friday sales last week, Brazil's Pix payment system recorded a daily record of transactions, fuelled largely by purchases of imported goods from Chinese websites.

He said the trend underscores how the deflationary impact of Chinese exports is filtering through Brazilian households, but warned that global conditions could shift.

Rising tariffs abroad or a weaker Chinese currency, he noted, could quickly reverse the flow of cheap products that have helped contain inflation at home.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.

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