Brazil’s medium-term inflation outlook improved further in the latest Focus report from the Central Bank, with median consumer price index forecasts easing even lower and remaining below the official upper limit for 2025.
Despite the most restrictive monetary policy in decades, price pressures appear to be gradually cooling.
The median projection for the IPCA, the benchmark consumer price index in Brazil, in 2025 fell from 4.33% to 4.32%, also the seventh consecutive weekly drop.
This forecast is currently 0.18 percentage points below the ceiling of the inflation target range of 4.50%. A month ago, that prediction was higher at 4.43%.
Even when limiting just to the 111 estimates revised in the past five business days, the median forecast dipped once more, from 4.32% to 4.31%, continuing the trend of small downward revisions.
Outlook for 2026 and beyond
Inflation projections for 2026 have also shifted lower. The consensus projection for that year fell from 4.06% to 4.05%, extending a streak of six consecutive weekly declines.
One month ago, the estimate was at 4.17%, indicating the magnitude of recent negative changes.
Looking at the most recent data, the 110 estimates updated within the last five business days followed a similar pattern, with the median dropping from 4.07% to 4.06%.
Further out, expectations remained constant. For the eighth week in a row, the median Focus forecast for inflation in 2027 remained unchanged at 3.80%, while the projection for 2028 remained stable at 3.50%.
Central bank projections and target framework
The Central Bank’s most recent forecasts show a small increase in the short term.
The Monetary Policy Committee (Copom) expects inflation to be 4.4% in 2025 and 3.5% in 2026. In the second quarter of 2027, the committee anticipates a 12-month inflation rate of 3.2%.
The inflation target of Brazil has been in force uninterruptedly since the turn of the year, calculated by the IPCA accumulated in the last 12 months.
It has a symmetrical tolerance band of 1.5 percentage points on either side of the central target of 3%.
If inflation lands outside of this range for six months in a row, the Central Bank is deemed to have missed its target. This programming came after the June IPCA was disclosed.
However, in November, the accumulated 12-month inflation dropped to 4.46%, below the ceiling of the tolerance range.
In its most recent Monetary Policy Report, the Central Bank maintained its commitment to guiding inflation toward the midpoint of the objective.
“Reframing inflation within the established tolerance range is a natural step in the process of converging to the target,” according to the study.
Interest rates remain at restrictive levels
Despite increasing inflation expectations, monetary policy has remained tight. At its most recent meeting, Copom retained the benchmark Selic rate at 15%, marking the fourth straight decision to hold rates steady.
The committee went on to argue that “the current strategy of maintaining the current level of the interest rate for a fairly long period is adequate to ensure the convergence of inflation to the target.”
This approach is consistent with market expectations outlined in the Focus study. The median projection for the Selic rate at the end of 2025 has remained at 15% for the past 24 weeks.
Looking ahead, the median prediction for the Selic rate at the end of 2026 remained unchanged at 12.25%, up from 12.0% a month earlier.
Among the 88 estimates updated in the last five business days, the median fell from 12.25% to 12.13%. The data was provided by the Central Bank on Monday, the 29th.
Projections for subsequent years remained unchanged.
The predicted Selic rate by the end of 2027 remained at 10.50% for the 46th straight week, while the median projection for the end of 2028 remained at 9.75%, slightly higher than the 9.50% recorded a month ago.
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