Weekly Report 134
✅ On the domestic front, Brazilian inflation once again surprised to the downside in September . The headline IPCA rose 0.48% MoM, below our forecast (0.53%) and the market consensus (0.52%). The result reinforced the ongoing disinflation trend and pointed to a qualitative improvement in its composition, with notable moderation in core services and stability in industrial goods. On the monetary policy front, recent remarks by Copom members maintained a cautious tone and indicated that the Selic rate at 15% remains appropriately restrictive, likely to be kept at this level for an extended period until inflation expectations are firmly anchored and full convergence to the target is ensured.
✅ On the fiscal side, the government suffered another setback in Congress with the withdrawal of Provisional Measure 1303, which sought to replace IOF revenues and secure additional funding for the 2026 budget . The decision, approved by a vote of 251 to 193, was seen as a political defeat for Finance Minister Fernando Haddad and once again exposed the administration’s difficulty in passing measures with fiscal implications, even after multiple concessions during negotiations. Against this backdrop, the economic team is now seeking alternatives to offset the revenue loss, including the reintroduction of rules limiting tax offsets and possible cuts to parliamentary amendments.
✅ On the external front, the U.S. government shutdown remains unresolved, entering its second week and amplifying both economic and political effects. More than 250,000 federal employees have already missed paychecks, and another 2 million are expected to be affected by next week, with a risk that even the military could miss salaries for the first time in decades. The standoff between President Donald Trump and Congress is starting to erode the administration’s popularity, as flight delays, national park closures, and disruptions in essential services accumulate. On monetary policy, the release of the September FOMC minutes reaffirmed that the Committee acknowledges the slowdown in activity and the labor market but still sees upside risks to inflation, maintaining the signal of gradual rate cuts. The prolonged shutdown and the scarcity of official data, however, heighten uncertainty around the Fed’s next steps and may complicate the calibration of future policy decisions.
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