Central Bank Links 6x1 Work Schedule End to Inflation Pressures
Monetary policy committee cites labor cost increases as a key supply-side shock.
1Monetary Policy Decision
The Brazilian Central Bank's Copom committee maintained the Selic interest rate at 13.75% per year during its November 2026 meeting. This decision reflects a cautious stance amid persistent inflationary expectations. The committee emphasized that current economic conditions require keeping interest rates elevated for a longer period to ensure price stability.
2Labor Market Impact
The committee explicitly identified the end of the 6x1 work schedule as a significant supply-side shock. This transition is pressuring labor costs for companies, which the Central Bank views as a factor complicating inflation control. Officials are monitoring how these increased operational expenses might eventually translate into higher consumer prices.
3Four Supply Shocks
Beyond labor costs, the Copom highlighted three other critical supply-side shocks impacting the economy. These include rising oil prices due to Middle East conflicts, climate-related disruptions from the El Niño phenomenon affecting agricultural productivity, and currency depreciation linked to domestic political uncertainty. These factors collectively hinder the bank's inflation management.
4Second-Order Effects
The Central Bank clarified that it will not react automatically to the primary effects of these supply shocks. However, the committee remains vigilant regarding potential second-order effects that could propagate price increases across other economic sectors. They are prepared to act firmly if these inflationary pressures show signs of becoming persistent.
5Economic Growth Outlook
Current projections indicate inflation reaching 5.6% in 2026, 4.7% in 2027, and 3.5% by the second quarter of 2028. While the domestic economy shows clear signs of deceleration, the committee noted that growth remains below potential. This slowdown is expected to help mitigate the risk of widespread inflationary propagation over time.
6Wage and Productivity
The Copom expressed concern regarding the relationship between wages and labor productivity. Although average earnings have decelerated in nominal terms, they continue to grow faster than real productivity. This imbalance is closely tracked by the Central Bank due to its direct impact on production costs and final consumer price levels.
7Labor Market Resilience
Despite signs of cooling, the labor market remains resilient with historically low unemployment rates. The growth of total occupation is losing momentum, yet the tightness of the market continues to influence wage dynamics. The committee will continue evaluating these labor conditions before determining the future trajectory of the national monetary policy.
8Future Policy Stance
The committee did not establish a specific timeline for resuming interest rate cuts. By maintaining the Selic at 13.75%, the Central Bank prioritizes anchoring inflation expectations against both domestic and external volatility. Future policy adjustments will depend heavily on how labor market transmission and supply shocks evolve in the coming months.
Original article: Poder360 — Central Bank Links 6x1 Work Schedule End to Inflation Pressures