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BRAZIL – Oil Shock May Be Good for Fiscal and External Accounts, But Will Be Terrible for Inflation and Interest Rates

The report analyzes the economic and financial environment for the week of May 18–22, 2026, highlighting the combination of high inflation, geopolitical tensions, and rising political risk in Brazil.
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US – CPI: Now You See Me?

The picture points to broader-based price increases than a significant portion of the market had anticipated.
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Brazil – Public Sector Spending Increases 30% (at constant prices) in 6 years

It is misleading to attribute to advocates of fiscal adjustment the intention of cutting public spending. The pace of expenditure growth in recent years has been so accelerated that simply reducing the speed of expansion would already represent a remarkable improvement.
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Brazilian Real Continues to Appreciate with Strong Foreign Capital Inflows

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BRAZIL – Demographics Complicates the Central Bank’s Task

A much slower expansion in labor supply limits the growth rate compatible with stable inflation.
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BRAZIL – Structural Factors Behind the Shortage of Labor Supply

The growth rate of labor supply will drop from 1.3 million to a mere 365 thousand per year.
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Brazilian Central Bank Reduces Base Rate But Real Interests Remain Prohibitively High

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War Spoils

We present a post-war scenario with a focus on the impact of oil on inflation, interest rates, and global growth. Even with a possible ceasefire, inflationary effects are likely to remain persistent, limiting the scope for rate cuts in the US and the UK.
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Even if Transitory, Higher Oil Prices Will Translate into Persistently Higher Inflation in the World

The return of oil prices to levels above USD 100 per barrel highlights the scale of the challenge in restoring commodity supply in the short term. Despite the elevated inflationary risk, there is an uneasy sense of calm in markets, particularly in the United States.
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In-depth research for high-level strategic decision-making.

Analysis

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Oil Shock and Inflation: Brazil x US

A persistently expansionary fiscal stance, a tighter output gap, and, above all, a monetary policy framework characterized by lower credibility help explain why 10-year inflation expectations have risen more sharply and remained more persistent in Brazil than in the United States.
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Museum of Old Ideas (by Tatiana Pinheiro)

The arithmetic is straightforward. The politics are not. The adjustment required to stabilize public debt is substantial. The most frequently discussed proposals in Brazil's fiscal debate are well known and have been debated by governments across the political spectrum, underscoring the difficulty of translating technical solutions into political reality.
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Trump at 500 days: Much Ado About (Almost) Nothing

The promise of a more meaningful reduction in public-sector financing needs through spending cuts remained largely unfulfilled. The primary deficit (excluding interest payments) declined from 3.2% of GDP at the end of the Biden administration to 2.7% in 2025 and likely 2.5% in 2026, but this does not appear sufficient to alter the trajectory of the overall fiscal deficit. Moreover, the adjustment has been driven more by higher revenues than by lower spending.  
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Inflation and Credibility

by Tatiana Pinheiro. The May IPCA report suggests that the disinflation process observed in the second half of 2025 has come to an end. Inflation rose by 0.58% month-over-month and 4.72% year-over-year.
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BRAZIL – A Massive Transfer of Wealth

In the following pages, we argue that the current policy mix has significantly intensified wealth inequality in the country, despite its redistributive disguise.
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Brazil – Public Sector Spending Increases 30% (at constant prices) in 6 years

It is misleading to attribute to advocates of fiscal adjustment the intention of cutting public spending. The pace of expenditure growth in recent years has been so accelerated that simply reducing the speed of expansion would already represent a remarkable improvement.
Ler mais

BRAZIL – Demographics Complicates the Central Bank’s Task

A much slower expansion in labor supply limits the growth rate compatible with stable inflation.
Ler mais

BRAZIL – Structural Factors Behind the Shortage of Labor Supply

The growth rate of labor supply will drop from 1.3 million to a mere 365 thousand per year.
Ler mais
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A strategic read on the economy and its real market impact.

Economic Outlook

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Brazil – War Changes the Macroeconomic Outlook

U.S. attacks on Iran are likely to keep oil prices elevated for some time (see Chart 2). This geopolitical component, together with the likely end of the downward cycle in international agricultural commodity prices, is expected to put upward pressure on inflation. As for iron ore, the start of operations at the Simandou mine—the world’s largest mining project, located in Guinea and led by Chinese state-owned consortia—has the potential to keep prices contained.
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Brazil Macro Outlook – The Guns of March

The U.S. attack on Iran now emerges as the main geopolitical risk factor. It is possible that, after a few weeks of conflict and higher oil prices, the situation will normalize. However, the risk has clearly increased, and the outlook must now incorporate a shock—albeit temporary—to global fuel prices.
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Brazil – SCENARIO MAP: A Stronger BRL

GDP: The GDP dynamics will probably be characterized by a virtual stagnation from 2H25 into 1H26 and and acceleration thereafter.
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Key market moves of the week.

Weekly

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Brazil – GDP Growth Slows

Brazil’s GDP grew 1.1% in Q1 2026 quarter-over-quarter.
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Interest Rates Reacts to Oil Prices Shock

Last week, long-term interest rates in the world’s major economies came under significant pressure.
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BRAZIL – Oil Shock May Be Good for Fiscal and External Accounts, But Will Be Terrible for Inflation and Interest Rates

The report analyzes the economic and financial environment for the week of May 18–22, 2026, highlighting the combination of high inflation, geopolitical tensions, and rising political risk in Brazil.
Ler mais

Brazilian Real Continues to Appreciate with Strong Foreign Capital Inflows

Ler mais

Brazilian Central Bank Reduces Base Rate But Real Interests Remain Prohibitively High

Ler mais

Even if Transitory, Higher Oil Prices Will Translate into Persistently Higher Inflation in the World

The return of oil prices to levels above USD 100 per barrel highlights the scale of the challenge in restoring commodity supply in the short term. Despite the elevated inflationary risk, there is an uneasy sense of calm in markets, particularly in the United States.
Ler mais
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Quick insights on events impacting the market.

Market Reactions

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Brazil – Non-Performing Loans Likely to Rise Further

Our estimate is that households’ annual interest bill has already reached BRL 1 trillion.
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US – CPI: Now You See Me?

The picture points to broader-based price increases than a significant portion of the market had anticipated.
Ler mais

Brazil – Monetary and Credit Statistics: Government Concerned About Indebtedness… Of Others!

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.
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US – Payroll:  Public Sector Accounts for 57% of Job Losses Between 2024 and Early 2026

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).
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Brazil- External Accounts in a Comfortable Position Amid the Oil Shock

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).
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Brazil – Fiscal and Credit Activism Working Against the Central Bank and in Favor of Excessive Indebtedness

What happens when fiscal stimulus and directed credit expansion are excessive? The answer: the monetary authority is forced to maintain excessively high interest rates to contain inflation, which worsens the financial situation of both households and firms.
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US – Unit Labor Costs and Import Prices: All Roads Lead to Inflation

The monetary authority reduced interest rates last year in response to only a moderate increase in unemployment, but in an environment where the labor market remained tight. Labor supply may face additional constraints due to the aggressive immigration enforcement policy. The fact is that unit labor costs increased 2.4% over the 12 months through the last quarter of 2025, reflecting wages rising 5% and productivity growing 2.2% (Chart 1).
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US – FOMC Meeting: Fed Holds Policy Rate. No Room for Cuts in 2026

The Chair of the Federal Open Market Committee emphasized that there will be no room for rate cuts until clear evidence emerges that inflation is converging toward the 2% target. We have previously highlighted that, even prior to the recent increase in oil prices, such a dynamic was unlikely to materialize in 2026.
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Clarity for fast decision-making.

Presentations

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Oil Prices Retreat – Inflation Expected to Turn Temporarily Negative – Pezco Monthly Review

The recent decline in oil prices and a broad range of industrial input costs may contribute to a gradual disinflationary process over the coming months, particularly in advanced economies.
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War Spoils

We present a post-war scenario with a focus on the impact of oil on inflation, interest rates, and global growth. Even with a possible ceasefire, inflationary effects are likely to remain persistent, limiting the scope for rate cuts in the US and the UK.
Ler mais

Short Term Shock With Long Term Consequences

The outlook combines strong structural drivers (AI-led productivity and growth) with negative short-term shocks, especially higher oil prices. Globally, inflation remains persistent, limiting the scope for interest rate cuts, particularly in the U.S. Brazil, despite its strengths in commodities and energy, is constrained by inflation and high interest rates. The political environment is polarized and pessimistic, with rising risks of radicalization. An unsustainable growth model—based on fiscal expansion and credit—has increased debt, delinquency, and investor caution.
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Anticipate market moves with data and strategy.

Forecasts

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Brazil – Forecasts in April 2026

See excel file with forecasts. The dispute for global economic hegemony between the United States and China, as well as the war between Russia and Ukraine, have moved to the background.
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Brazil – Forecasts in March 2026

xls file
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Brazil – Forecasts in February 2026

xls file
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