Brazil Inflation Forecast Adjusted After Oil Price Surge

The Brazilian Finance Ministry has revised its inflation forecast for the current year, attributing the change to rising oil prices driven by tensions between the United States, Israel, and Iran. This update precedes the central bank's upcoming policy meeting, where officials are considering potential interest rate cuts.

Key Adjustments and Projections

• Inflation Forecast: Raised to 3.7% from 3.6% for 2026.
• Growth Forecast: Maintained at 2.3%.
• Assumptions:
• Oil price spike is short-lived.
• Brent crude averages $73.10 per barrel this year.
• The conflict will ease soon, with quick repairs to damaged infrastructure.

Impact of Higher Oil Prices

• Revenue Boost: Expected 21.4 billion reais in additional federal revenue, even under moderate impact.
• Extreme Scenarios:
• Brent at $82 per barrel: Inflation could rise by 0.33 percentage points.
• Brent at $100 per barrel: Inflation could rise by 0.58 points.

Government Response to Price Hikes

• Tax Adjustments:
• Removed taxes on diesel.
• Introduced a levy on oil exports.
• Note: These measures were not included in the latest projections but could influence future outcomes.