Economists surveyed by Brazil's central bank see the developing El Niño weather pattern as a material upward force on inflation this year and next, and they say not all of its expected impact has yet been priced into official forecasts.
In a questionnaire completed ahead of last week’s interest rate decision, the median response from almost 100 economists attributed a 30 basis-point increase to headline inflation in 2026 and 40 basis points in 2027 as a result of El Niño. The central bank included a question about El Niño in its survey for the first time since January 2024.
El Niño - characterized by warming Pacific Ocean waters and shifts in rainfall distribution - is anticipated to strengthen in the second half of this year. Economists who responded to the survey said they had already folded about two-thirds of the expected impact into their consumer price estimates for this year, but only roughly half for 2027.
Projected inflation path
The survey’s central tendency places inflation at 5.2% for this year and 4.2% for next year, both noticeably above the central bank’s 3% target. Those projections underline the upward pressure policymakers face as weather-related supply disruptions combine with other inflation drivers.
Food prices expected to react fastest
Analysts at Citi highlighted food prices as the channel likely to show the swiftest effects from El Niño in Brazil. The weather pattern tends to produce drought conditions in the northeast that can impair harvests for crops such as coffee, sugar and citrus. Citi economists Ernesto Revilla and Felipe Juncal pointed to the strong 2015-2016 El Niño episode, when Brazil saw a pronounced surge in food inflation, and said a similar dynamic is probable this time.
Citi’s assessment projects that inflation could jump by about 1.47 percentage points within two months of the shock, reflecting rapid adjustments in food prices following adverse weather.
Bank forecasts and the possibility of extended effects
BTG Pactual has signaled concern about a so-called "super El Niño," warning that the effect on food inflation may intensify into next year. The bank raised its 2027 inflation forecast to 4.5% from 4.2%, explicitly citing El Niño risks that remain skewed toward the upside if conditions deteriorate further.
In a note, BTG Pactual’s analysts cautioned that "part of the shock may be transmitted to 2028 through inertia and expectations. The size of this pass-through depends on central bank credibility and the short-term reaction: the longer the (easing) cycle continues, the greater the risk of de-anchoring." Their comment underscores the role of expectations and policy responses in determining whether a temporary supply shock becomes more persistent.
Monetary policy context
Central bank Governor Gabriel Galipolo warned in May that a strong El Niño would add to other supply shocks, including upward pressure on oil prices tied to the U.S.-Israeli conflict with Iran, complicating efforts to rein in inflation in the context of a tight labor market. He emphasized the difficulty policymakers face in distinguishing temporary price shocks from second-round effects, particularly while inflation expectations move away from target.
Last week, the central bank eased policy for a third consecutive meeting, trimming its benchmark rate by 25 basis points to 14.25% and leaving future adjustments open. In the minutes from that decision, policymakers noted that risks to inflation are tilted to the upside but also reiterated that conventional practice calls for a measured policy response to supply-driven price shocks.
Outlook and open questions
The survey and analysts’ notes make clear there is uncertainty about how much of the El Niño impact has been internalized in forecasts and how much could spill over into later periods through inertia and shifts in expectations. With survey participants estimating only partial incorporation of El Niño effects for 2027, and with banks flagging upside risks to food inflation, the trajectory of consumer prices and the central bank’s policy path will remain areas of close attention for markets and the wider economy.