The carry-over into Q3 2024 for Brazilian activity is strong, but momentum already fades at the margin. Retail sales and labour market indicators already point to weaker sequential growth.

The economy will still grow by a solid 3% this year, though.

Advanced economies are struggling a little more with inflation at the "last mile".

One could have argued that more productivity is indicative of prices being more flexible. The post-pandemic world data point otherwise

The Brazilian consumer outlook is becoming increasingly more fragile. Real wages are not on par with consumption growth, meaning much of the current levels of consumption can only be sustained through lower savings.

Household spending growth is bound to weaken

Southern floods to pressure CPI in 🇧🇷

We revised our end-2024 inflation forecast up by 0.3ppts, to 4.0% y/y. Devastating floods in the Rio Grande do Sul state will impact food inflation in the coming months. The situation remains fluid and implies an upward risk to our baseline.

In the figure below I've layed out two scenarios.

The red line is a "shock free" model result, considering Q1 2024 starting conditions and my calibrated steady-state targets.

The black line considers the expansionary fiscal policy and inflation convergence skepticism shocks.