Brazil Inflation Expectations for 2026 Rise to 4.99%, Above Target Range

Brazil's inflation expectations for 2026 have climbed to 4.99%, surpassing the central bank's 4.5% tolerance limit, according to the bank's Focus survey. This marks the second consecutive week of rising expectations. The actual inflation rate stands at 4.22% over the past year, still below the limit. The survey, which has been conducted since 1999 when Brazil adopted inflation targeting, involves about 140 banks, fund managers, brokers, and consultancies.

The median forecast increased to 5.08% among those who updated their view in the last five working days. Policymakers closely monitor these expectations as they influence prices and the cost of bringing inflation under control. Brazil's inflation target has been consistently missed since January 2025, with actual inflation staying within the 1.5% to 4.5% range only this month.

The inflation rate, measured by the IPCA, reached 4.22% in August, with a 0.70% increase in September alone. The government has raised concerns about the IPCA's limitations, particularly its underweighting of newer costs like streaming services. Electricity prices, which rose 7.42% in September after a one-off credit linked to the Itaipu hydroelectric dam ended, had a significant impact on inflation.

Core inflation, which excludes volatile prices, rose to 0.34% in September. The Finance Ministry's optimistic forecast for 2026 has decreased from 5.1% to 4.9%, citing lower-than-expected inflation through July. The central bank expects one more interest rate cut to 13.50% by November and then a pause in rate hikes, with the real currency expected to remain stable around 5.20 reais per dollar.