Government should raise inflation projection in 2026 under the impact of El Niño, says secretary

Southern Brazil may have impacts from El Niño
The Ministry of Finance is expected to increase its official forecast for inflation in 2026. The expectation is that prices will rise more than estimated in May, when the projection was 4.5%, mainly due to the effects of the El Niño climate phenomenon. The information was given this Wednesday (2) by the department's Economic Policy Secretary, Débora Freire.
In an interview with the Jota portal, the secretary stated that the government is now more certain that El Niño will be intense. As a result, the slowdown in inflation expected for the second half of this year should be smaller than expected.
"We already expected a more aggressive El Niño, but now this scenario is consolidating in a more robust way. So, because of this, we understand that there is a risk, there is an upward vector for inflation this year", he said.
According to Freire, the new projection should be above the ceiling of the Central Bank's inflation target of 4.5%, but still below market estimate. This week, the Central Bank's Focus bulletin pointed to an inflation expectation of 5.33% for 2026.
The secretary also said that the Treasury, for now, maintains the growth forecast for the Brazilian economy this year. The projection released in May is for a 2.3% increase in the Gross Domestic Product (GDP), an indicator that measures everything the country produces in terms of goods and services.
She highlighted, however, that the numbers are still being revised and could be adjusted before the official release, scheduled for this month.
Ministry of Finance
Agência Brasil
High interest rates around the world hamper growth in Brazil
Freire added that higher interest rates in The main economies of the world make it more difficult for the Brazilian economy to grow in 2027. According to her, the expectation of a higher Selic rate than previously expected could also reduce the pace of economic activity.
Regarding public accounts, the secretary stated that the fiscal framework, a set of rules that limits the growth of government spending, is fulfilling its role of improving public finances gradually.
"Our expectation is that the fiscal framework will bring about the convergence of public debt in the medium term, not in the next year", she stated.
She acknowledged, however, that there are still challenges. Among them, he cited the need to control the growth of mandatory expenses, such as pensions and benefits, within the limit of a real increase of 2.5% per year provided for by the fiscal framework. He also highlighted the importance of expanding the formalization of workers, which increases the collection of Social Security contributions.

Source: G1