Brazil’s year-on-year inflation rate in the first half of May climbed to 4.64%, official data published on Wednesday showed, exceeding the upper edge of the central bank’s target tolerance band for the first time since October 2025 and complicating the outlook for further monetary easing.
The statistics agency IBGE reported the figure of 4.64% for the 12-month period in early May, up from 4.37% in the previous month and above the 4.55% economists had forecast in a Reuters poll.
The central bank has been explicit about its unease with rising inflation expectations as it works to return the annual consumer price index to its 3% target, which carries a tolerance band of plus or minus 1.5 percentage points. The May reading therefore sits just beyond the band’s upper limit.
Economists polled weekly by the central bank currently see inflation finishing the year at 5.04% and ending 2027 at 4.01%. Those projections come amid ongoing geopolitical tensions described in the data as the U.S.-Israeli war with Iran drags on and amid mounting concerns about a potential supply shock related to a strong El Nino weather pattern.
Policymakers had already trimmed the benchmark Selic rate by 25 basis points at their meeting last month, marking a second consecutive reduction and lowering the rate to 14.50%. However, the committee left its next move on the table for the June 16-17 meeting, citing uncertainty in the economic and inflation outlook.
While the bank’s internal survey still points to benchmark borrowing costs of 13.25% by the end of the year, some economists have revised to a shallower easing trajectory in response to resilient activity and the recent inflation surprise. Citi, for example, this week projected a year-end rate of 13.75% and expects additional cuts only in the second half of 2027, citing what it describes as the de-anchoring of inflation expectations and a more hawkish tone from the central bank.
On a monthly basis, the IBGE said consumer prices rose 0.62% in the month to mid-May, a slowdown from the 0.89% increase recorded a month earlier but larger than the 0.53% rise economists in the Reuters poll had expected. The monthly gain was led by food and beverage prices, which climbed 1.38%.
Other categories showing upward pressure included housing and healthcare, while transport prices declined after the March oil price shock associated with the Middle East conflict.
Implications
The inflation surprise tightens the central bank’s policy calculus. Higher-than-expected price readings and elevated inflation expectations increase the risk that the easing cycle will be more limited or slower than earlier anticipated, with consequences for borrowing costs, bond markets and interest-rate-sensitive sectors of the economy.