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BRAZIL ECONOMICS - Report 31 Mar 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The inflationary scenario remains challenging despite some signs of economic slowdown. The economy is expected to continue operating at full employment, maintaining inflationary pressure, as revealed by its underlying indicators.

In the labor market in particular, the slow adjustment of the unemployment rate and the consequent acceleration of real wages and the wage bill suggest that the cooling of household consumption should occur more slowly than expected.

In this context, the revisions to the Central Bank's inflation projections in its most recent quarterly reports highlight the challenges ahead, suggesting that even the projected convergence by 2027 may not materialize.

Thus, the hawkish tone of the latest Copom Minutes proved appropriate, but our main concern lies in the likely government response to a strongly contractionary monetary policy, effectively undoing the Central Bank’s efforts.

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