Nonfarm business labor productivity (output per hour) rose 1.4% at an annualized rate in the second quarter of 2026 and 2.2% from the same quarter a year earlier (See Chart 2). The result combines a 1.7% increase in output with a mere 0.3% rise in hours worked.
The productivity and labor cost indicators show a dynamic that is favorable for the Fed, in that it is characterized by labor cost pressures that are virtually nonexistent from the standpoint of firms.
Final demand PPI declined in June but remained elevated at 5.5% year-over-year (vs. 6.0% in May).
The narrow core measure, which excludes food, energy, and trade services, stood at 5.1% (see Chart
1).
Our latest assessment is that the recent oil price shock has not been strong enough to generate a sustained upward inflation trend. We expect year-over-year core inflation to remain around 2.5% for the CPI and close to 3.0% for the PCE deflator for some time.
The government is right to be concerned about the financial situation of Brazilian households, especially given the strong electoral appeal of the issue. The official strategy is to ease the financial burden on lower-income groups through subsidies (the “Unshackling” program). The remaining question is: who will unshackle government’s own debt? The answer: you.
The lion’s share of the labor market deterioration observed throughout 2025 was associated with job losses in the public sector. The monthly average of 3k jobs added in the recent past (+37k in 2024 alone) shifted to a contraction of 20k jobs on the same basis when considering the last 12 months (see Chart 2).
Although not yet incorporating the period following the oil shock, external accounts data indicate that Brazil is well positioned to weather the international crisis. First, the current account deficit, at 2.7% of GDP on a 12-month basis through February, has narrowed significantly from the 3.6% level prevailing in mid-2025 (Chart 1).
