Brazil’s Central Bank Warns of Second-Round Inflation Risk From New Supply Shocks

Overview

• Gabriel Galípolo, who spoke Wednesday at the central bank’s annual conference, said the bank must be even more vigilant about price pass-through from supply shocks such as the Middle East war.
• He said a run of shocks is testing monetary authorities’ credibility because households still face high living costs even when official inflation looks contained.
• Since the conflict began, the bank has taken a cautious approach to lowering interest rates, and Copom’s April minutes said the size and length of any policy moves will hinge on incoming data.
• Officials said it is hard to separate one-off jumps in items like oil or tariffs from broader wage and price increases, a task made tougher by a tight job market and unanchored inflation expectations.
• Galípolo listed four shocks in under six years: the pandemic, the war in Ukraine, a domestic tariff hike, and the Middle East war, and he said the bank will stay focused on controlling inflation.