Core Insights - Brazilian Central Bank Governor Gabriel Galipolo acknowledged that inflation levels have exceeded government targets for six consecutive months since the second half of 2024, with expectations to return to target range only by the end of Q1 2026 [1] - The inflation target set by the National Monetary Council (CMN) requires the Consumer Price Index (IPCA) to maintain a median level of 3% starting in 2025, with a tolerance range of 1.5% to 4.5% [1] - As of June 2025, Brazil's inflation rate reached 5.35%, significantly above the upper limit of the target range [1] Group 1 - The main reasons for uncontrolled inflation include strong economic activity, faster-than-expected growth in household consumption and investment, unanchored market inflation expectations, and rising prices of services, fuels, and food [1] - The recent depreciation of the Brazilian real against the US dollar has increased import costs, exacerbating inflationary pressures [1] - Galipolo noted that economic performance has exceeded expectations, with a persistently overheated labor market and significant deviations in inflation expectations from the second half of 2024, reflecting increased stickiness and inertia in price mechanisms [1] Group 2 - In response to rising price pressures, the Brazilian Central Bank's Monetary Policy Committee (Copom) restarted the interest rate hike cycle in September 2024, raising the benchmark rate to 15%, a recent high [2] - The Central Bank emphasized maintaining a "sustained tightening policy stance" and may further increase rates as necessary [2] - Galipolo stated that if inflation does not return to the target range as expected, the Central Bank will publish explanatory supplementary documents quarterly in the Monetary Policy Report and may write to the government to explain reasons and countermeasures [2]