Consumer operators, marketplace sellers and anyone funding working capital in Brazil

Brazil, between a slowdown and rising prices

2026-11-07

Brazil's central bank cut rates five times this year. This week it stopped, holding the Selic at 13.75%. The statement leaned a little more hawkish than before but kept its balance. The message we took from it: policy is already tight enough, and the market should not price a rush back to hikes.

The trouble is that both halves of the problem are getting worse at once.

Growth is fading

• Industrial output fell 0.8% in September, across most sectors, with stock building up as orders slowed.
• Business surveys for October dropped sharply, so the weakness carried into the last quarter.
• Formal hiring was roughly flat in September. Unemployment is still near record lows, but the labour market has stopped tightening.

A negative third quarter is now a real possibility, and two in a row would put the second half of the year in technical recession.

Prices are firming

• Core inflation and services inflation are picking up.
• The real has weakened, inflation expectations are drifting higher, and two new pressures are on the way: El Niño on food, and a shorter working week on labour costs.

A central bank whose job is inflation cannot cut into that. Our read is a long pause, through the end of 2027, with the next move as likely to be up as down.

Politics decides how long

Whether the central bank can wait for the slowdown to cool prices depends on Brasília. President Lula's fourth term starts in January. The economic team and the fiscal plan for the next four years will be named between late November and early December, once coalition talks and the cabinet settle. Continuity is the base case: slow repair of the budget, mostly through tax, with rates kept above neutral. A credible plan shortens the pause. A loose one lengthens it.

What it means for operators

• Budget for today's rates through 2027. Any plan that assumed easing next year should be redone at 13.75%.
• Expect demand to soften before prices do. Consumers are already stretched, and real wage gains will narrow as inflation picks up.
• Watch funding costs, not list prices. Instalment financing, card fees and receivables discounting price off the Selic. They will stay high, and in a slowdown lenders get choosier.

We trade into Brazil and finance the working capital behind it. Our plan for 2027 assumes no relief on rates. Anything better is upside.