By Marcela Ayres
BRASILIA, June 24 (Reuters) – Economists in Brazil expect the El Niño weather pattern will have a significant impact on inflation this year and next, not all of which has been incorporated into their forecasts, a central bank survey showed on Wednesday.
The median estimate from nearly 100 economists polled in a questionnaire ahead of last week’s interest rate decision pointed to an impact of 30 basis points on headline inflation in 2026 and 40 basis points in 2027.
This was the first time since January 2024 that the central bank included a question about El Niño, the weather pattern characterized by warming Pacific Ocean waters and redistribution of rainfall, which is expected to intensify in the second half of this year.
Respondents said they had already incorporated about two-thirds of the impact into their estimates for consumer prices this year, but only half for next year.
The survey showed inflation in Latin America’s largest economy reaching 5.2% this year and 4.2% next year, both well above the central bank’s 3% target.
FOOD PRICES IN FOCUS
According to Citi, food prices will show the fastest impact of El Niño in Brazil, where the weather pattern tends to bring droughts in the northeast, affecting crops such as coffee, sugar and citrus.
Citi economists Ernesto Revilla and Felipe Juncal said that during the strong 2015–2016 El Niño, Brazil was hit by a surge in food inflation that was likely to repeat. This time, inflation is expected to rise by about 1.47 percentage points within two months of the shock.
BTG Pactual said a “super El Niño” is taking shape, with the impact on food inflation likely to become more pronounced next year.
The bank raised its 2027 inflation forecast to 4.5% from 4.2%, reflecting El Niño risks that remain skewed to the upside if weather conditions worsen.
“Part of the shock may be transmitted to 2028 through inertia and expectations. The size of this pass-through depends on central bank credibility and the short-term reaction: the longer the (easing) cycle continues, the greater the risk of de-anchoring,” the bank’s analysts said in a note.
MULTIPLE SHOCKS
Central bank Governor Gabriel Galipolo warned in May that a strong El Niño would add to supply shocks linked to higher oil prices due to the U.S.-Israeli conflict with Iran, complicating efforts to curb inflation amid a tight labor market.
He said policymakers face the challenge of separating temporary price shocks from second-round effects, especially as inflation expectations drift away from target.
Last week, the bank cut rates for a third straight meeting by 25 basis points, to 14.25%, and left future steps open, acknowledging inflation is now expected to converge to target only by the first quarter of 2028, one quarter beyond its formal horizon.
In the minutes from the decision, policymakers noted that although risks to inflation are tilted to the upside, standard practice is to temper the policy reaction to supply-driven shocks.
(Reporting by Marcela Ayres in Brasilia; Editing by Matthew Lewis)
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