Wells Fargo Economics projects that Brazil's April IPCA inflation will rise by 0.9% month-over-month, pushing headline inflation to around or slightly above the top of the target band at 4.5% year-over-year [1]. The report highlights that energy and food price pressures are intensifying, with energy identified as the key near-term upside risk due to ongoing Middle East conflict and tightening physical supply constraints, which are leading to stronger pass-through into refined products [1]. Food inflation, which was already firming in March, is expected to broaden further due to higher transport and fertilizer costs impacting various food categories in the coming months [1].
While core inflation remains restrained by restrictive real rates, administrative price smoothing, and fiscal offsets—especially in an election year—these factors are also contributing to upside risks in inflation expectations [1]. Despite these pressures, the Brazilian Central Bank (BCB) is still anticipated to proceed with a cautious rate cut at its June meeting [1]. However, the outlook for further easing has become increasingly uncertain, with a pause in the easing cycle now appearing more likely according to Wells Fargo [1].
The combination of rising inflation expectations and persistent energy and food price shocks complicates the BCB's monetary policy path, suggesting that the central bank may need to balance inflation risks against the need for further rate cuts [1].
CONCLUSION
Brazil's inflation outlook has worsened, with April IPCA expected to reach or exceed the top of the target band, driven by energy and food price shocks. While a cautious rate cut is still expected in June, the likelihood of a pause in the easing cycle has increased, reflecting heightened uncertainty in the monetary policy outlook.