Brazil’s central bank chief, Roberto Campos Neto, stated on Monday that policymakers believe inflation expectations should stabilize and improve over time, despite recent concerns about them deviating from the official target.
“It is generally possible to be optimistic when we look at the reasons for the unanchoring of inflation expectations,” he said at an event organized by the business group Lide in Sao Paulo.
Private economists, surveyed weekly by the central bank, have adjusted their inflation expectations to 3.86% for this year, 3.75% for 2025, and 3.58% for 2026. This adjustment for 2026 came after 46 weeks of stability. The government’s official inflation target is set at 3%.
Campos Neto attributed the shifts in inflation expectations to various factors, including uncertainties about monetary and fiscal credibility. He emphasized that over time, people will come to see that policymakers’ decisions are based on technical grounds. He also highlighted the potential positive impact of recent discussions on budget deindexation.
In Brazil, many mandatory public expenditures are linked to distinct growth rules, making their control challenging.
Earlier this month, in a split decision, the central bank reduced interest rates by 25 basis points to 10.50%, following six cuts of twice that size. Campos Neto noted that despite the split, all board members unanimously recognized the unanchoring of inflation expectations as a significant factor.
“We understand that the division generated some noise. What we need to do is communicate that the division was technical, and we have been doing that,” he said. “Our actions will show that the rate decision is technical over time.”
He also mentioned that the central bank sees a slight correlation between labor-intensive services and price increases, but noted that this trend is still in its early stages and needs further analysis.
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