Brazil Analysts See Inflation Near 5% Next Year as Outlook Dims

 Brazil economists raised their 2025 inflation forecasts further above the top of the central bank’s tolerance range, highlighting the woes facing policymakers as they pledge higher borrowing costs.

Consumer price increases will hit 4.96% in December of 2025, up from the prior forecast of 4.84%, according to a weekly central bank survey of economists published Monday. It was the 11th straight upward revision to next year’s estimate. Annual inflation will stand at 4.9% this month, down slightly from the prior estimate of 4.91% but still above the bank’s 4.5% tolerance range ceiling.

Central bankers lifted interest rates to 12.25% this month, and signaled hikes of a full percentage point in both January and March. Most analysts, however, see the tightening cycle extending through mid-2025, while traders bet borrowing costs will near 17% by the end of next year. More expensive food items, resilient services costs and a weaker real are main concerns for policymakers in an outlook in which the disinflation process has stalled.  

Annual inflation unexpectedly ticked down to 4.71% in early December, according to the national statistics institute. Meat prices climbed together with food outside the home, while smaller rises in airfares and a sharp drop in residential energy bills were among the downward surprises. 

Taming inflation

Gabriel Galipolo, who is set to lead the central bank starting in January, has pledged to do “whatever” it takes to tame inflation. Most analysts see borrowing costs at 14.75% by December of next year, and 12% at end-2026.  

President Luiz Inacio Lula da Silva’s plans to jump-start the economy with higher public spending while boosting households’ disposable income are making markets skeptical about Brazil’s debt path. The primary deficit — which excludes interest payments — hit 6.6 billion reais ($1.1 billion) in November, slightly below the 7 billion reais median estimate from analysts in a Bloomberg survey, according to a separate central bank report published on Monday. 

The Brazilian real has weakened over 21% this year, leading losses among major currencies as investors head for the exits. Most analysts see the currency at 5.96 per dollar at the end of 2025, according to the central bank’s economist expectations survey.