Latam Macro Notes: Brazil - Cyclical Moderation Amidst Broad Price Pressures

Research evidence excerpt

Latam Macro Notes: Brazil - Cyclical Moderation Amidst Broad Price Pressures

12 May 2026

Latam Macro Notes

Figure 3: Services inflation declined another tad… Figure 4: …and inflation was driven by housing and

transport costs

Source: Deutsche Bank Research, IBGE, Haver Analytics Source: Deutsche Bank Research, IBGE, Haver Analytics

We anticipate that headline inflation will remain above 4% for the remainder of

the year. We estimate that the core indicator could follow a more protracted

decline, likely retrenching back to the target band by Q2. We pencil in annual

headline and core inflation closing the year at 4.9% and 4.12%, respectively. The

pressure from fuel prices steaming from the Iran shock alongside tax measures

to finance the fuel subsidies (such as the increased tax on cigarettes) will add

around 1.2pp to the headline according to our estimates (assuming oil prices

remain in the $85-$100/bbl range). A tight labor market, the impulse to

consumption spurred by the income tax break, a possible expansion of social

transfers this year, and inflation expectations remaining above target are likely to

contribute to inflationary pressures and impede a sustained convergence of

inflation to the target.

The marginal decline in core inflation, services inflation, and our metric for labor-

intensive services inflation—closely monitored by the Brazilian Central Bank

(Bacen)—suggest that the softer growth cadence is helping contain inflationary

pressures. We uphold the expectation of a 25bp cut in June’s meeting, given the

elevated real rates and significant room for monetary easing indicated by our

estimates (Figure 5). However, we acknowledge that Bacen's latest communiqué

suggests a willingness to pause the "calibration cycle" if data warrants it. To