Brazil's inflation forecasts rise, sees tough path ahead

Brazil's central bank raised its inflation projections for the long-term despite anticipating weaker economic activity this year, and said that this scenario makes reaching its 3 per cent target challenging.

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After forecasting inflation at 5.1 per cent for 2025 last week when it lifted interest rates by 100 basis points and signaled a smaller hike at its next policy meeting, the bank now projected inflation at 3.7 per cent in 2026 and 3.1 per cent in the third quarter of 2027, the final period covered by its latest estimates.

The data released in the bank's quarterly monetary policy report effectively show inflation remaining above target throughout the entire forecast horizon, only nearing the 3 per cent goal more than two years ahead.

Compared with the previous report in December, inflation expectations rose by 0.6 percentage points for this year and 0.1 percentage points for 2026.

The forecast for the third quarter of 2026, considered the most influenced by recent monetary policy decisions, also increased by 0.1 percentage points to 3.9 per cent.

"Inflation projections remained above target, making convergence to the goal challenging," policymakers said.

"The effects of rising inflation expectations tend to reinforce themselves," they added, saying revisions to short-term projections pushed estimates higher, while the increase in real interest rates, exchange rate appreciation, and lower oil prices contributed to downward pressures, they added.