Economists surveyed by Brazil's central bank have again lifted their inflation forecast for 2026, raising it to 5.04% in the weekly Focus bulletin, the eleventh consecutive increase, as the conflict in the Middle East drives up fuel prices. The projection sits above the central bank's 3% target and its 1.5-percentage-point tolerance band, keeping policymakers cautious.
The central bank said it was monitoring the conflict and the inflationary effects of a potentially prolonged crisis, particularly the impact on global supply chains and commodity prices that feed through to Brazilian inflation both directly and indirectly. Crude oil and refined fuels have been the main channel as tensions between Israel and Iran rattle energy markets.
The benchmark Selic rate currently stands at 14.5% a year. The bank's monetary policy committee, Copom, trimmed it by a quarter point in April, its second consecutive cut, judging the move consistent with steering inflation back toward target over time. Persistent price pressure has since clouded the outlook for further easing.
Despite the inflation worries, economists nudged up their growth expectations, raising the 2026 GDP forecast to 1.89% from 1.85%, while trimming the 2027 estimate. Brazil's economy expanded 1.1% in the first quarter from the prior three months, supported by household consumption and stronger investment.
For 2027, the survey put inflation at around 4%, still above the centre of the target, suggesting markets expect price pressures to ease only gradually. The repeated upward revisions reflect both the external shock from the Middle East and stubborn domestic demand.
The figures land in a charged political setting. President Luiz Inacio Lula da Silva, who is seeking a fourth term in October's election, has repeatedly criticised high interest rates as a brake on growth and has rolled out measures to support consumption, including subsidised credit for vehicle purchases and a federally backed debt-renegotiation programme.
The tension between Lula's growth agenda and the central bank's inflation-fighting stance has been a defining feature of his term, with Brazil running one of the highest real interest rates in the world. The bank has guarded its independence even as the government presses for relief for borrowers.
Attention now turns to Copom's next meeting, where policymakers are widely expected to weigh holding rates steady rather than cutting again, given the renewed climb in inflation expectations and the uncertainty emanating from the Gulf.