In the following pages, we argue that the current policy mix has significantly intensified wealth inequality in the country, despite its redistributive disguise.

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.

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

The growth rate of labor supply will drop from 1.3 million to a mere 365 thousand per year.

Brazilians are predominantly conservative. Most people tend to uphold traditional values related to religion and family, as well as stereotypical views about gender roles, while showing limited acceptance of minorities (difference is tolerated, but often perceived as uncomfortable in the public sphere).   We know that a society’s behaviors and opinions are influenced by how secure people feel about their own survival: the greater the sense of fear, the more individuals tend to rely on discipline imposed by religion and traditional values[1].   Charts 1 and 2 show how Brazilian society has increasingly identified itself as more right-leaning and more conservative over the past decades.

We outline below the key issues likely to dominate the 2026 electoral cycle and assess how each may shape electoral outcomes.   Charts 1 and 2 already provide a clear signal: crime and corruption have increased in salience over the past four years. Healthcare remains relevant, but less so than during the COVID-19 period, when it likely contributed to the defeat of the incumbent. Democracy, while not explicitly captured in Ipsos and Datafolha surveys, was a decisive issue in 2022 but is unlikely to carry the same weight in 2026. The economy does not appear to be a particularly sensitive topic at present, as inflation and unemployment are at relatively comfortable levels. ESG and diversity-related issues also show limited traction among voters.

Current political polarization and pessimism may be linked to the discontent of a significant portion of the population that sees itself as a loser in a game arbitrated by institutions more concerned with self-preservation than with defending fair and impartial rules.   The hand of the state comes to be seen as determining the allocation of wealth in favor of specific groups — sometimes perceived as undeserving — without imposing a relevant burden on the most privileged segments of society. Hence the strength of themes such as meritocracy, religion, and entrepreneurship.   Polarization and pessimism in an electoral context favor populist approaches such as: the search for culprits, the presentation of simple solutions, attacks on institutions, and emotional appeals focused on fear.

Even though markets continue to price in interest rate cuts in 2026, the rise in oil prices associated with the bombings of Iran — even if temporary — tends to make the currently expected reduction in the policy rate much less likely.   Evidence of persistent inflationary pressures was already emerging due to labor cost dynamics and the interruption of the oil price decline cycle that had been in place since 2023. Added to these factors now is the possibility of an increase in costs associated with fuels and other petroleum-derived products. Even if not very persistent, it would definitely challenge inflation convergence to the target.