Four shocks and a funeral

BRAZIL ECONOMICS - Report 10 Nov 2026 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The Minutes of last week´s Copom meeting reinforces the mismatch between the diagnosis of the inflation outlook and the monetary policy reaction, which was already present in the statement released back then. Anticipating the conclusion, even though BCB correctly perceives the deterioration of the inflationary scenario, even for more distant horizons, it seems unwilling to address such worsening through a change in monetary policy. We believe this should aggravate the already existing issue of the de-anchoring of inflation expectations, and therefore the inflationary outlook itself.

BCB's projections summarize the scenario deterioration. Projected inflation for the relevant horizon – the 12 months through June 2028 – stands at 3.5%, compared with 3.1% at the time of the release of the Monetary Policy Report of September 2026. Note that this scenario, due to Copom governance rules, was produced under the assumption of an exchange rate at BRL 5.20/USD (the average of the two weeks prior to the meeting), even though it was already around BRL 5.50/USD, something like 5.5-6.0% additional depreciation. According to the impulse-response estimates of the BCB's semi-structural model, this would add something like 0.3% to the projection, that is, inflation closer to 3.8% over the relevant horizon.

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