Brazil’s Finance Ministry has revised its inflation outlook modestly higher for the year after incorporating an anticipated rise in average oil prices tied to the U.S.-Israeli conflict with Iran. The ministry now assumes the average oil price will be 10.8% above prior estimates, a change it says could add to inflationary pressures while also boosting export revenue for the country.
The updated projections, released ahead of the central bank’s monetary policy meeting next week, leave the ministry’s gross domestic product growth forecast unchanged at 2.3% while lifting its inflation view for 2026 to 3.7% from the previous 3.6% estimate. Policymakers and markets face heightened uncertainty over whether the central bank will inaugurate an expected easing cycle with a 25- or 50-basis-point cut, as oil price volatility complicates bets on the timing and size of rate moves.
In its report, the ministry described the oil shock as temporary and built its baseline on Brent crude averaging $73.10 per barrel for the year. "This scenario assumes an easing of the conflicts in the coming days and the possibility of repairing, still in the short term, the damage already observed at energy and logistics facilities," the ministry said, adding that the baseline also factors in the release of strategic oil reserves and increased output from producers outside the affected region.
The ministry noted that higher oil prices are a mixed signal for Brazil’s economy. As Latin America’s largest economy, Brazil counts on oil as a key export. Elevated crude tends to expand net exports and, in turn, support economic growth and federal government receipts. Under the ministry’s milder-impact baseline, it projected an additional 21.4 billion reais in federal revenue linked to higher oil prices.
To illustrate the sensitivity of inflation to oil, the ministry laid out two more disruptive scenarios. If Brent averages $82 per barrel this year, inflation would be 0.33 percentage points higher versus a 0.14-point uplift in the baseline. Under a more severe outcome with Brent at $100 per barrel, inflation would climb by 0.58 percentage points.
Separately, the government announced measures on Thursday intended to soften the impact of the recent spike in global oil costs: it eliminated taxes on diesel and introduced a levy on oil exports. The ministry clarified that those policy steps were not incorporated into the projections published on Friday.
Exchange-rate notation included with the release put the U.S. dollar at 5.2321 reais.
Analysis - The ministry’s baseline treats the oil disruption as short-lived, relying on both increased supply outside the conflict zone and strategic reserve releases to temper prices. Even under that milder scenario, the combination of a slightly higher inflation projection and increased federal receipts reflects the dual effect of oil on both prices and public finances.