The drivers of Brazil’s recent period of rapid growth seem to be the subject of a heated debate at the central bank – and policymakers’ conclusions will play a big role in determining the pace and scale of the easing cycle. For our part, we think the key explanation lies in labour market dynamics. While we don’t expect the recent strength of income (and consumption) growth to be sustained, it’s likely to remain at a level that keeps core inflation above target and limits the scope of the rate cutting cycle.
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