Business · Economy · 3 hrs ago
XP economist warns of higher inflation pressure in Brazil
XP chief economist Caio Megale says Brazil faces stronger inflation pressure, with the outlook for 2027 worsening.
Oil is trading around $110 a barrel, food prices have risen, and the real has weakened from about 5.05–5.10 to 5.30–5.40 per US dollar.
Megale also pointed to possible short-term business costs from ending the six-day work schedule and changes to how household spending is measured.
These pressures could make the Central Bank’s 3% inflation target harder to reach, while inflation expectations are already above the target and rising.
Megale expects the bank to cut its benchmark rate by 0.25 percentage points at its next meeting, but says it may signal a pause in December.
A pause would be weighed against signs that Brazil’s economy is slowing, including in retail sales, industry and services.
He said the rate-cut cycle could be derailed if oil rises further, government spending increases and the real weakens toward 6 per dollar.
XP chief economist Caio Megale said recent movements in Brazil’s exchange rate and oil prices point to higher inflation pressure.
He said inflation projections, especially for 2027, are worsening because of combined external and domestic factors.
Megale said the pressures could make it harder for the Central Bank to meet its 3% inflation target.
He expects the Central Bank to cut its benchmark rate by 0.25 percentage point at its next meeting, while leaving open the possibility of pausing cuts in December.
He said a further rise in oil prices, more government spending or the exchange rate nearing R$6 could threaten the rate-cutting cycle.
- Who
- Caio Megale, XP’s chief economist.
- What
- He warned that oil prices and the exchange rate point to higher inflation pressure in Brazil, particularly in 2027.
- When
- In an interview reported on October 27, 2026. The Central Bank’s next meeting was expected the following week.
- Where
- Brazil.
- Why
- Higher oil and food prices, a weaker exchange rate and domestic cost pressures are worsening inflation projections.
This story does not have two clearly opposing sides.
The exchange rate moved from a range of R$5.05 to R$5.10 to about R$5.30 to R$5.40.
Oil was trading at about US$110 a barrel, and Megale said inflation projections, especially for 2027, were deteriorating.
Megale expected the Central Bank to cut its benchmark rate by 0.25 percentage point.
Megale said the Central Bank should leave the door more open to pausing rate cuts if inflation expectations continued to worsen.
- Economist
- Caio Megale, XP chief economist
- Oil price
- About US$110 a barrel
- Exchange rate
- About R$5.30 to R$5.40, up from R$5.05 to R$5.10
- Inflation target
- 3%
- Expected next rate cut
- 0.25 percentage point
What people are saying
suggests higher inflation in 2027
All this is suggesting a greater challenge for the Central Bank to reach the 3% target
My impression is that the Central Bank will still deliver a 0.25-point cut next week
Now, at least on the economic growth side, it seems quite clear that there is a turn in the cycle