Inflation Report

December 19th, 2024

Diogo Abry Guillen

BCB’s Deputy Governor for Economic Policy

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INFLATION REPORT (IR)

Reference scenario

2
Reference scenario
External scenario
• The global environment remains challenging, due mainly to the economic outlook in the United States, which
poses questions about the pace of economic deceleration, disinflation and, consequently, about the Fed's
monetary policy stance.
• The central banks of major economies remain committed to bringing inflation back to its targets in a context
characterized by labor market pressures.
• The Committee judges that the external environment continues to require caution from emerging market
economies.

Economic activity
• Regarding the domestic scenario, the set of indicators on economic activity and labor market continues to
exhibit strength, as observed in the recent release of GDP, which suggests a further widening of the output
gap.
Inflation
• Headline inflation and measures of underlying inflation are above the inflation target and have increased in
recent releases.
• Inflation expectations for 2024 and 2025 collected by the Focus survey increased significantly and hover
around 4.8% and 4.6%, respectively.
• Copom's inflation projections for the second quarter of 2026, current relevant horizon for monetary policy,
stand at 4.0% in the reference scenario.
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INFLATION REPORT (IR)

Economic outlook

External scenario

4
External outlook – Activity
Global economic activity continues to show resilience notwithstanding the restrictive monetary policy stance. The labor
market has shown clearer signs of accommodation in recent months, with a progressive rebalancing between supply and
demand.

GDP growth U.S. – Job openings and participation rate

from 2023Q4 to 2024Q3
Job openings/unemployed % population
% change over same quarter in previous year
2.0 68
6
5
1.5 66
4
3
2 1.0 64
1
0 0.5 62
-1
-2 0.0 60
US China Japan Euro area UK Latin Global¹ Nov Sep Jul May Mar Jan Nov
America² 2001 2005 2009 2013 2017 2021 2024
2023Q4 2024Q1 2024Q2 2024Q3
Sources: Bloomberg, BCB Job openings/unemployed 1/ (LHS) Participation rate (RHS)
1/ Calculated as described in the box "Projections and macroeconomic
analysis model of the global economy" in the September 2022 IR. Source: Bloomberg
2/ Argentina, Brazil, Chile, Colombia, Mexico, and Peru. 1/ Until October 2024.

5
External scenario – Inflation
In advanced economies, despite the decline in headline inflation indexes, cores are still at high levels, above the target in
many economies, and their pace of convergence has decelerated at the margin.

CPI – Advanced economies CPI core – Advanced economies¹

% p.a. % p.a.
20 10
18
16 8
14
12 6
10
8 4
6
4 2
2
0 0
-2
Nov May Nov May Nov May Nov -2
2021 2022 2023 2024 Oct Apr Oct Apr Oct Apr Oct
2021 2022 2023 2024
France Germany Italy
Spain Netherlands UK¹ France Germany Italy
Canada¹ Japan¹ U.S.¹ Spain Netherlands UK
Canada Japan U.S.
Source: Bloomberg
Source: Bloomberg
1/ Until October 2024. 1/ Until October 2024.

6
External scenario – Inflation expectations in EME
Expectations indicate inflation within the interval around the target by the end of 2025 in major emerging
market economies.

Inflation expectations¹
% p.a.
10

0
BRA CHL COL MEX PER ZAF CZE HUN POL RUS UKR IND CHN IDN MYS PHL THA KOR

Inflation target range Current data Expect. 2024 Expect. 2025

Sources: Bloomberg and central banks' surveys
1/ Until December 6.

7
External scenario – Monetary policy in EME
Expectations indicate, in general, lower interest rates than the current ones by the end of 2025 in major
emerging market economies. Most central banks in advanced economies continue to ease their restrictive
monetary policy stance.
Policy interest rates¹ Monetary policy rates¹
% p.a. % p.a.
24
7
6
18
5
4
12 3
2

6 1
0
-1
0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024
BRA CHL COL MEX PER ZAF CZE HUN POL UKR RUS IND CHN IDN MYS PHL THA KOR

US Euro area UK Japan

Current data Expect. 2024 Expect. 2025

Sources: Bloomberg and central banks' surveys Source: Bloomberg

1/ Until December 6.
1/ Until December 6.

8
External scenario – Commodities and pressure indicators
Energy commodity prices registered a positive change in the quarter, with a slight increase in oil
and a strong rise in natural gas.
Change in commodity prices
% change of the 10-day moving-average in USD between previous and
current IR cut-off dates
Commodity prices¹ Tin
Dec/2021 = 100 Dec/2021 = 100 Wheat
180 480 Nickel
Copper
160 400 Brent
Rice
140 320 Orange juice
Coal
120 240 Soy oil
Cotton
100 160 Lead
Sugar
80 80 Gold
Fed cattle
60 0 Corn
Dec Aug Mar Oct May Dec Silver
2021 2022 2023 2024 Aluminum
Iron ore
GSCI Metal index Crude Oil – Brent
Zinc
GSCI Agricultural Iron Ore Swine
Natural gas
Natural Gas – TTF (right) Cocoa
Source: Bloomberg Coffee
1/ Until December 6.
- 10 -5 0 5 10 15 20 25 30
Agricultural Metal Energy

Source: Bloomberg
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INFLATION REPORT (IR)

Economic outlook

Domestic outlook

10
Economic activity
Economic activity in Brazil remained dynamic in 2024Q3, leading to a new round of upward revisions to
growth projections for the year.

Gross Domestic Product Expectations for GDP growth

2019Q4 = 100, s.a. annual change since previous year (%)
112 3.5

108 3.0

2.5
104
2.0
100
1.5
96
1.0
92 0.5

88 0.0

set

set
jan

mar

jun

jan

jun
mai

jul

mar

mai

jul
fev

out
nov
dez

out
nov
dez
abr

fev

abr
ago

ago
13 14 15 16 17 18 19 20 21 22 23 24
Pre-pandemic maximum Pre-pandemic trend previous year reference year
GDP 2022 2023 2024
Source: IBGE
Source: BCB (Focus)

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Economic activity
The group of activities more sensitive to the Household consumption maintained robust
economic cycle once again showed strong growth in 2024Q3.
growth despite some deceleration.

GDP – More and less cyclical sectors GDP and household consumption
2022 = 100, s.a.
2022 = 100, s.a.
108 110

106 105
104
100
102
95
100

98 90

96 85
I II III IV I II III IV I II III
2022 2023 2024
80
GDP
III I III I III I III I III I III
GVA - more cyclical sectors 2009 2012 2015 2018 2021 2024
GVA - less cyclical sectors
GDP Household consumption
GVA - less cyclical sectors ex-agriculture
Sources: IBGE and BCB Source: IBGE

12
Economic activity
Gross Fixed Capital Formation (GFCF) continued to grow at a strong pace. The investment rate increased,
but remains below the average level since 1996.

GDP and GFCF GFCF/GDP at 2019 prices

2022 = 100, s.a. %, s.a.
120 20
115
19
110
105 18
100
95 17

90 16
85
80 15

75 14
III III III III III III III III III III III III III III III III III III III III III III III III III III III III III III III III
09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
GDP GFCF GFCF/GDP Average 1996Q1 to 2024Q2
Source: IBGE Source: IBGE

13
Economic activity
Available data suggest a new expansion in economic activity in 2024Q4, with no clear signs of a significant
slowdown.

Economic activity indicators

2022 = 100, s.a.
112
110
108
106
104
102
100
98
96
Oct Jan Apr Jul Oct Jan Apr Jul Oct
2022 2023 2024
IBC-Br
PIM - manufacturing
PMC - Broad PMC ex-wholesale food
PMS
Sources: IBGE and BCB

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BOX

Projections for GDP growth in 2024 and 2025

2024
Gross domestic Product
% growth • The GDP growth projection for 2024 grew from 3.2% to 3.5%.
1/ 1/
2023 2024 2025
IR Sep IR Dez IR Sep IR Dec • New positive surprise in 2024Q3 and the first indicators of 2024Q4
have led to a new round of upward revisions in the growth
GDP at market prices 3,2 3,2 3,5 2,0 2,1
projection.
Taxes on products 2,3 4,7 5,5 1,9 2,0
Value added at basic prices 3,4 2,9 3,3 2,0 2,2 • The revision of the CNT series had little effect on the aggregate
GDP, but it was important in changing the projection of some
Supply
components.
Agriculture and livestock 16,3 -1,6 -2,0 2,0 4,0
Industry 1,7 3,5 3,3 2,4 2,4
Services 2,8 3,2 3,8 1,9 1,9
2025
• Slight increase in the 2025 projection, from 2.0% to 2.1%.
Demand
Household consumption 3,2 4,5 5,3 2,2 2,4 • Positive contributions: higher expected growth for agriculture; and
Government consumption 3,8 2,7 1,9 2,0 1,6 an increase in the statistical carry-over for 2025, mainly due to
Gross fixed capital formation -3,0 5,5 7,3 2,0 2,9
positive surprises in 2024Q3.
Exports 8,9 3,2 3,0 2,5 2,5
Imports -1,2 11,3 13,7 2,5 2,5 • Negative contribution: Expectation of a slower growth rate
Net trade contribution (p.p.) 2,0 -1,2 -1,6 0,0 0,0
throughout the year, in a scenario of stronger monetary tightening.
Sources: IBGE and BCB
1/ Estimates. • The perspective of lower growth in 2025 compared with 2024
remains.

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BOX

Interest, income, and consumption of durables and non-durables

Response to shock in interest rates
• This box empirically evaluates the likely heterogeneity of the Response to a 1 p.p. shock in interest rates (%)
effects of interest rates and income on the consumption of 2,0

durables and non-durables in the Brazilian economy.

0,0
• Model: Quarterly VAR at first difference estimate relating the
real ex-ante Selic, restricted HGDNI, and consumption of non- -2,0

durables and durables obtained by aggregating items from

-4,0
the PMC.
• Results: -6,0 Non-durables Durables
1 2 3 4 5 6 7 8
• The response of durables to interest rates is higher than
that of non-durables. Response to shock in income
Response to a 1 p.p. shock in income (%)
• The response to income is more alike between durables 1,2
and non-durables, but still greater for durables. 1,0
• The decomposition of the forecast error variance shows
0,8
that interest rate shocks are more important for the 0,6
variance of durables. In turn, income shocks are more
0,4
important for the consumption of non-durables.
0,2
Non-durables Durables
0,0
1 2 3 4 5 6 7 8

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 BOX

Recent evolution of manufacturing

• Growth recovery since the end of 2023; Apparent demand for industrial goods
Var % T/T-4 e contribuição dos componentes
• The growth was widespread.
10
• Increased output is associated with domestic demand
8
and greater use of production factors.
6
• The sector’s profitability is at a relatively high level. 4
• Industry's entrepreneurs mention limiting factors, either 2
more structural or more cyclical, for the output growth, 0
such as: tax burden, lack or cost of raw materials, lack or -2
high cost of skilled workers, high interest rates, transport -4
logistics, competition with imports. -6
Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep
2022 2022 2023 2023 2024 2024

Production Imports Exports Apparent demand

Sources: Secex and BCB

17
Labor market – Employment
The labor market has remained heated in recent months. The unemployment rate is at the historic low and
the creation of jobs remains at a high level.

Unemployment rate¹ Net formal job creation

%, 3mma, s.a. Thousand, s.a.
15
400
14
13 300
12 200
11
10 100
9 0
8
-100
7
6 -200
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 -300

¹ Historical unemployment rate estimates following Alves, S. A. L. and Fasolo, -400

A. M., "Not just another mixed frequency paper", Banco Central do Brasil Oct Oct Oct Oct Oct Oct
(2015), Working Paper 400. 2009 2012 2015 2018 2021 2024
Sources: IBGE and BCB Source: Ministry of Labor and Employment

18
Labor market – Income
The average real income measured by the PNAD Continuous has been growing at a more moderate pace.
However, the slowdown in real income is greater than that of nominal income.

Real average labor income Salaries and labor incomes

Dec 2019 = 100, 3mma, s.a. YoY %, nominal, 3mma
11
120
10
115
9
110
8
105
7
100 6
95 5

90 4
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
85 2023 2024
Oct Oct Oct Oct Oct Oct Oct Oct PNAD PNAD registered
2017 2018 2019 2020 2021 2022 2023 2024 CAGED hiring salary IDAT salary
Usually received Trend CCT adjustment
Source: IBGE Formal Informal Sources: IBGE, MLE, Itaú and BCB

19
Credit
The credit market shows incipient signs of turnaround. Interest rates on non-earmarked credit increased while non-
earmarked credit granting decreased in the household segment but maintained a robust growth in the corporate
segment.

Non-earmarked interest rates Non-earmarked new credit operations

% p.y. BRL billion of Oct 2024, s.a., 3mma
30 110 260

105 240
25
100 220
20
95 200

15 90 180

85 160
10
80 140

5 75 120
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Households low cost Companies ex revolving Households ex-credit card purchases Companies (right)

20
Credit
Delinquency, indebtedness, and debt-to-income indicators remained stable, even in a scenario of growing activity and
household disposable income.

90 days past due loans Household debt and household debt service ratio
% without mortgage loans
% of income accumulated over 12 % of income, s. a., 3mma
4.5
34 30
4.0
32 28
3.5
30 26
3.0
28 24
2.5
26 22
2.0
24 20
1.5
22 18
1.0
20 16
Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct
Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Total Households Companies Household debt Household debt service ratio (right)

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BOX

Projection for credit growth in 2024 and 2025

• Nominal growth projection for the SFN credit balance in 2024 fell from 11.1% to 10.6%, within a
scenario of tighter monetary policy and reassessed trajectory of earmarked corporate credit.
• For 2025, when the effects of the monetary tightening will be concentrated, nominal growth
projection dropped from 10.3% to 9.6%, highlighting the downside revision for non-earmarked
household credit.
Credit balance
Total credit outstanding
12-month % change
% year change
Occurred Proj. 2024 Proj. 2025 40
2022 2023 Oct 2024 Previous Current Previous Current

Total 14.5 8.1 10.8 11.1 10.6 10.3 9.6 30

Non-earmarked 14.9 5.6 10.2 10.5 10.4 10.2 9.6

20
Households 17.4 8.4 11.3 12.0 11.5 11.0 10.0
10.6
Corporations 11.9 2.1 8.7 8.5 9.0 9.0 9.0 8.1 9.6
10
Earmarked 14.0 11.9 11.7 12.0 10.8 10.5 9.7
3.4 5.4 4.9
Households 18.0 13.1 12.8 12.0 12.0 10.5 10.0 0
Corporations 6.9 9.6 9.5 12.0 8.5 10.5 9.0

Total Households 17.7 10.5 12.0 12.0 11.7 10.8 10.0 -10
08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Total Corporations 10.1 4.7 8.9 9.7 8.8 9.5 9.0
Nominal Real

22
Fiscal
The Central Government primary balance target for 2024 is likely to be met, considering the lower limit set, but the fiscal
situation still requires attention. Uncertainties remain regarding the achievement of fiscal targets in the coming years, and
projections indicate a rising public debt trajectory. The PCQ assessed the worsening of the fiscal situation since the latest
Copom meeting.
PCQ: Assessment of fiscal situation Debt forecasts
Share of responses (%) in each PCQ % GDP
% 95
100% 90
90% 85
80% 80
70% 75
60% 70
50% 65
40% 60
30% 55
20% 50
10% 45
0% 40
35
243

245
246

248
249

251
252

254

256
257

259
260

262

264
265

267
242

244

247

250

253

255

258

261

263

266 30
Improved No relevant changes Worsened 2006 2009 2012 2015 2018 2021 2024 2027 2030
Question: How do you assess the change of the fiscal outlook since the GGGD PSND
previous Copom, considering both your baseline scenario and related risks?
Forecast from 2024 on correspond Focus
Source: BCB – Pre-Copom Questionaire (PCQ)

23
External accounts
The current situation of the external accounts, as well as their prospect, remains similar to that of the
September 2024 IR.

Current account Direct investment liabilities

USD billion, 3mma s.a. USD billion, 3mma s.a.
12
10
9
8
6
6
3
4
0
2
-3
0
-6

-9 -2

-12 -4
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Intercompany loans - ex reverse
Balance on goods Services Reinvestment of earnings
Incomes Current account Equity other than reinvestment of earnings

24
External accounts
The growth of imports is associated with the increase of quantum, widespread across categories, in line
with the expansion of consumption, investment, and manufacturing.

Quantum Index Price Index

Index (2019=100), 3mma, s.a. Index (2019=100), 3mma s.a.
150
140 145

130 135
120 125
110
115
100
105
90
80 95

70 85
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul
2019 2020 2021 2022 2023 2024 2019 2020 2021 2022 2023 2024
Imports Exports Imports Exports Terms of trade

Source: BCB, Funcex methodology Source: BCB, Funcex methodology

25
BOX

Projections for the external accounts for 2024 and 2025

Current account • Little change compared with what was expected in the
% GDP previous IR.
6

4 • A relevant increase in the current account deficit is

2 expected from 2023 to 2024 and a more moderate
0
increase from 2024 to 2025. Nevertheless, the current
account deficit in both years is expected to remain
-2
below net inflows of direct investment liabilities.
-4

-6 • 2024 – current account deficit equivalent to 2.5% of

-8
GDP. Compared with the previous IR, slight downward
revision for the expected trade surplus due to
1995

1997

1999

2001

2003

2011

2013

2015

2017

2019
2005

2007

2009

2021

2023

2025 (p)
Balance on goods Services
increased imports.
Incomes Current account
• 2025 – current account deficit equivalent to 2.7% of
GDP compared with 2024: stable trade balance and
increased primary income deficit due to net interest
expenses.

26
Commodity and producer prices
Commodity prices have increased, especially when quoted in BRL. The producer price index, for which in recent
quarters had been registered a rise associated with manufacturing, accelerated due to meat prices.

IC-Br and foreign exchange rate IPA-DI Contributions to quarterly IPA-DI change
%, YoY
10-day moving average; Dec/31 2020 = 100
50 p.p.
180
6
40
160 4
30
2
140 20
0
10
120 -2
0
-4
100
-10 -6
Feb May Aug Nov Feb May Aug Nov
80 -20 2023 2023 2024
Jan Apr Jul Oct Jan Apr Aug Nov Feb May Aug Nov Mar Jun Sep Jan Jan Jan Jan Jan Jan Jan Jan
2021 2022 2023 2024 2010 2012 2014 2016 2018 2020 2022 2024 Agriculture Mining
Food, beverages, and tobacco Fuels
In USD In BRL USD/BRL June IR IPA Manufacturing ex-food and fuels Other manufacturing
Sources: Bloomberg and BCB Source: FGV Source: FGV

27
Consumer prices (IPCA)
Consumer prices inflation – already high in 2024Q3 – increased. IPCA accelerated in 2024Q3, with a sharp
rise in food. In the 12-month period, indexes increased for both the headline inflation (from 4.24% to
4.87%) and the average of core measures (from 3.80% to 4.21%) .

IPCA Average of core inflation measures

% %
16
12
14
12 10
10
8 8

6
6
4
2 4
0
-2 2
-4
Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov 0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
QoQ saar YoY
Sources: IBGE and BCB QoQ saar YoY

28
Consumer prices – Food-at-home
Consumer food prices increased strongly in the quarter, driven by beef. The pressure of coffee and soybean oil
prices was also noteworthy. Prices of other industrialized food items are also on the rise, impacted by the BRL
depreciation. In turn, fresh food prices fell again, even in a period of less favorable seasonality for this group.

Contributions to quarterly changes in food-at-home Food-at-home inflation

prices – IPCA
p.p. %
5 40
4 35
3 30
2 25
1 20
0 15
-1 10
-2 5
-3 0
-4 -5
Feb May Aug Nov Feb May Aug Nov
-10
2023 2023 2024
Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov
Industrialized Fresh Semi-industrialized 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Sources: IBGE and BCB QoQ saar YoY

29
Consumer prices – Industrial goods and services
The 12-month industrial goods inflation Services inflation remains high and some of its core
increased, in line with the recent exchange rate measures have increased compared with the previous
trajectory. quarter.
Industrial goods inflation Services inflation
%, QoQ saar %, QoQ saar
20
12

15 9

10 6

5 3

0
0

-3
-5 Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov
Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov Nov 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Underlying services Services Services ex-airfare
Core Industrial goods Industrial goods

30
Consumer prices – Expectations
Inflation expectations remain deanchored for the next few years and have risen since the previous IR.

Breakdown of the revision on the 2024 Focus survey Median market expectations (Focus) – Annual IPCA
weights Focus expectations (% p.a.)
%
Sep-13 Dec-6 Contr. to Δ
4.75
(p.p.)
4.50
IPCA 100 4.35 4.84 +0.49
4.25
IPCA (by aggregation) 100 4.36 4.81 +0.45
4.00
Food-at-home 15 5.46 8.49 +0.46
3.75
Industrial goods 23 2.88 2.71 -0.04
Services 36 4.55 4.69 +0.05 3.50

Administered prices 26 4.78 4.69 -0.02 3.25

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Market prices 74 4.19 4.89 +0.52
2024 2025
Market prices (by aggreg.) 74 4.21 4.85 +0.47 2026 2027
September IR cut-off date

31
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RELATÓRIO DE INFLAÇÃO

Perspectivas para a inflação

32
 Cenário de referência de curto prazo
IPCA – Inflation surprise
% change Surprises
2024 • Consumer inflation in the Sep-Nov quarter was above
12- expectations, with most of the surprise concentrated in food-at-
Quarterly
Sep Oct Nov
up to May
month home (meat). The services segment also contributed to higher-
up to Nov
than-expected inflation, especially food-away-from-home.
Copom scenario¹ 0.57 0.36 0.04 0.97 4.43
• The December projection was revised upwards, with stronger
Actual IPCA 0.44 0.56 0.39 1.40 4.87
increase in beef prices and less benign behavior of administered
Surprise (p.p.) -0.13 0.20 0.35 0.42 0.44
prices.
Sources: IBGE and BCB
1/ Scenario at the September Sunday Inflation Report cut-off date.
Projection
• Except for the fluctuation between January and February, 12-
IPCA – Short-term projections¹? month inflation is expected to remain above to the upper limit of
% change the tolerance interval over the next months, amid higher monthly
2024 2025 inflation rates.
Dec Jan Feb Mar • Contributing to high monthly inflation: food (exchange rate
Monthly change 0.58 -0.08 1.17 0.42
depreciation, pass-through of cattle price increase), industrial
Quarterly change 1.54 0.89 1.68 1.51
goods (upward producer prices, exchange rate depreciation), and
12-month change 4.89 4.37 4.72 5.00
services (higher inertia, heated labor market).
Sources: IBGE and BCB
1/ Copom's reference scenario at cut-off date.
33
Conditional projections for inflation: conditioning assumptions
Selic rate target assumption for projections – Focus Four-quarter-ahead real Selic
survey expectations Quarterly averages
Quarterly averages % p.a.
% p.a. 75 bps increase + 2 x 50 bps increase 9 Neutral real
14
13
8 interest rate
7
12 from 5.00%
6
11
5
10
4
9
3
8
2
7 IV I II III IV I II III IV I II III IV I II III IV I II
2022 2023 2024 2025 2026 2027
6
IV I II III IV I II III IV I II III IV I II III IV I II III IV I II Dec 2024 IR Sep 2024 IR
2022 2023 2024 2025 2026 2027 2028 Note: Real Selic calculated as the four-quarter-ahead Selic rate, discounted
Dec 2024 IR Sep 2024 IR from inflation expectations for the same period, both variables extracted from
the Focus survey.
Exchange rate assumption for projections – PPP Brent-type oil price
trajectory Quarterly averages
Quarterly averages USD/Barrel
USD/BRL 120
6.25 6.3% depreciation
110
6.00
Exchange rate 100
5.75 from R$5.95/US$ 90
5.50
80
5.25
70
5.00
60
4.75
50
4.50 IV I II III IV I II III IV I II III IV I II III IV I II
IV I II III IV I II III IV I II III IV I II III IV I II 2022 2023 2024 2025 2026 2027
2022 2023 2024 2025 2026 2027 Dec 2024 IR Sep 2024 IR 34
Dec 2024 IR Sep 2024 IR
Sources: Bloomberg and BCB
 Financial conditions
Financial Conditions Index
Standard deviations in relation to the mean and contributions Financial conditions became more restrictive in 2024Q4, mainly
due to the "Interest rates in Brazil" and "Currencies" groups.
Tighter financial conditions
Main factors for FCI increase in the quarter:
2.0

1.5 • increase of domestic interest rate futures;

1.0
• BRL depreciation;
• USD appreciation against currencies of other advanced
0.5
economies;
0.0
• external interest rate futures increase in longer-terms;
-0.5 • higher 5-year Credit Default Swap (CDS) for Brazil .
-1.0 • domestic stock exchange fall.
Dec Mar Jun Sep Dec Mar Jun Sep Dec
2022 2023 2024
Domestic Interest Rates Foreign Interest Rates Main factors for FCI decrease in the quarter:
Risk Currencies
Oil Prices Commodity Prices • VIX reduction;
Capital Markets FCI
• oil price reduction;
• appreciation of foreign stock exchanges;
• agricultural commodity prices increase.

35
 Output gap
Due to the economic activity surprises, the estimated output gap was once again revised upwards.

Output Gap: estimatives and dispersion

% • The estimated output gap for 2024Q3 and
8 2024Q4 is 0.7%.
6
4
2 • The estimated output gap for 2026Q2 is -
0
-2 0.6%.
-4
-6
-8
-10
-12
II II II II II II II II II II II
2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023
Minimum-Maximum Percentiles 25-75
Reference scenario

Note: Dispersion measures were constructed using a set of output gap

measures. See the box “ Output gap measures in Brazil” , in the June 2024
Report, for a presentation of various methodologies. Chart data:
2003Q2–2024Q4.
36
 Conditional projections for inflation: reference scenario
Inflation projections – Reference scenario
YoY IPCA inflation
%
2023 2024 2025 2026 2027
Price index IV I II III IV I II III IV I II III IV I II

IPCA 4.6 3.9 4.2 4.4 4.9 5.0 5.0 5.1 4.5 4.2 4.0 3.8 3.6 3.4 3.2
Previous IR difference (p.p.) [0.0] [0.0] [0.0] [- 0.2] [0.6] [1.0] [1.2] [1.6] [0.8] [0.7] [0.5] [0.4] [0.3] [0.2] -

Market prices 3.1 3.1 3.5 4.1 5.0 5.3 5.4 5.5 4.5 4.1 3.8 3.6 3.4 3.2 3.0
Previous IR difference (p.p.) [0.0] [0.0] [0.0] [- 0.2] [0.6] [1.0] [1.3] [1.7] [0.9] [0.7] [0.5] [0.4] [0.3] [0.1] -

Administered prices 9.1 6.4 6.4 5.5 4.6 4.1 3.9 4.0 4.5 4.6 4.6 4.4 4.1 4.0 3.8
Previous IR difference (p.p.) [0.0] [0.0] [0.0] [0.2] [0.4] [0.8] [1.1] [1.5] [0.5] [0.7] [0.5] [0.6] [0.3] [0.4] -

Note: The values in white background are actuals, and those in hatched background are projections. The values presented are rounded. Therefore, the aggregated values may not match the
combination of the rounded disaggregated values. The difference with respect to the previous Report is calculated using the rounded values presented.

• Inflation in 2024 mainly resulted from a combination of: • Main factors for the increase in medium-term projections:
o exchange rate depreciation, o Stronger-than-expected economic activity => increase in the
o strong growth pace of the economic activity, estimated output gap.
o climate factors, o Strong exchange rate depreciation
o context of deanchored inflation expectations and inertia from the o Increase in inflation expectations
previous year's inflation.
o Inertia from the higher short-term inflation
• Inflation projections rose across the entire horizon, thus
• Main downward factors for projections:
increasing the distance from the target and making convergence
o Real interest rate increase
to the target more challenging. 37
GDP and IPCA projections

Actual GDP and GDP projection Actual CPI and inflation projection – IPCA
% %
6 4.8 12
10.1
3.2 3.5
4 3.0 10
1.8 2.1
2 1.2 8
5.8
0 6 4.9
3.7 4.3 4.5 4.6 4.5
3.6
-2 4

2
-4 -3.3
0
-6 2018 2019 2020 2021 2022 2023 2024 2025 2026
2018 2019 2020 2021 2022 2023 2024 2025

Actual GDP GDP projection Actual CPI Inflation projection Target

Sources: IBGE and BCB Sources: IBGE and BCB

38
Final comments – Balance of risks
• Due to the materialization of risks, the Monetary Committee judges that the scenario is less uncertain and more
adverse than in the previous meeting. However, the risks to its inflation scenarios remain tilted to the upside.

• Among the upside risks for the inflation outlook and inflation expectations, it should be emphasized:
i. a more prolonged period of deanchoring of inflation expectations;
ii. a stronger-than-expected resilience of services inflation due to a more positive output gap; and
iii. a conjunction of internal and external economic policies with an inflationary impact, for example, through a
persistently more depreciated currency.

• Among the downside risks, it should be noted:

i. a greater-than-projected deceleration of global economic activity; and
ii. an impact on global inflation larger than expected from monetary policy tightening.

39
bcb.gov.br