Tighter Than It Seems

BRAZIL ECONOMICS - Report 15 Jul 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The labor market suggests that the economy is operating close to or, more likely, above its potential. At the same time, aggregate demand has reacted to the fiscal impulse, largely associated with income transfers, which, together with increasing labor income, maintain high consumption levels. Additionally, the pressure on earnings raises inflationary risks in labor intensive sectors. Labor market strength, reflected in both production costs and domestic demand, highlights our assessment that recent favorable readings in underlying inflation measures are unlikely to persist.

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