MURRAY ADVOGADOS
MURRAY ADVOGADOS
Consumers complain about high prices; producers se Chinese competition as unfair
04/01/2025
Amid weakened demand across various industrial sectors, the construction sector continues to sustain steel consumption in Brazil. Driven by housing and infrastructure projects, construction companies keep purchasing, while other segments are either scaling back or increasing imports to cut costs.
The Brazilian market is grappling with a surge of Chinese steel imports, putting pressure on domestic steelmakers’ results. Over the course of 2024, imports have reached nearly 25% of total steel consumption in some moments. However, the penetration of imports in the construction industry remained lower, as long steel products—such as rebar, bars, and profiles used in metal structures—are less vulnerable to Asian competition.
“If not for the domestic demand from the construction industry, 2024 would have been very challenging, possibly even resulting in losses,” said Silvia Nascimento, president of Aço Verde Brasil, noting that 2025 will resemble the past year, with construction continuing to uphold demand.
The construction sector has increased its steel purchases due to the growth in real estate production since the pandemic, remaining high despite rising interest rates, fueled by the My Home My Life housing program (MCMV). According to the Brazilian Construction Industry Chamber (CBIC), 60% of current steel consumption stems from real estate and 40% from infrastructure, though infrastructure projects use proportionally more steel.
In 2024, the number of new housing units launched in the country rose by 18.6%, according to CBIC, with 383,500 new units put up for sale, half of which belong to the MCMV, launches under this program increased by 44% in a year.
Companies like Gerdau benefit from this scenario, as they focus their production on long steel products. In a February interview with Valor, CFO and Investor Relations Director Rafael Japur indicated that the outlook is positive for the first half of 2025, although uncertain for the second half.
“There is uncertainty in some key sectors, such as construction, regarding the effects of a stronger interest rate hike and real estate financing,” he explained.
Rebar imports totaled 156,000 tonnes from January to September, compared to a domestic sale of 2.75 million tonnes. Although the participation is still low, it has grown since the pandemic, noted Dionyzio Klavdianos, president of the Materials, Technology, Quality, and Productivity Committee at CBIC. In 2020, the ratio was 15,200 tonnes imported to 3.28 million tonnes sold domestically.
During that period, steel shortages encouraged imports, which allowed the construction sector to “become more familiar” with foreign producers, Mr. Klavdianos said. Turkey is the largest rebar exporter to Brazil, but it can also come from Egypt and Latin American countries. Chinese producers do not have the required certification to sell to the Brazilian market, although they could obtain it if there is interest, the director argued.
“Given the increasing cost of selling to the U.S., the Chinese industry could become interested in the Brazilian market, resolve this technical barrier issue, and start to supply rebar to construction,” he pointed out.
Domestic producers remain the preferred choice in the segment as they offer high-quality materials and additional services, such as on-site support, Mr. Klavdianos explained. There is also a challenge for small construction companies to bear the cost of imported steel, which must be paid upfront, and a fear of confronting the steel industry, which could impose higher prices on Brazilian construction companies if the volume of imports rises too much. “You would still need to buy from them,” the CBIC director said.
Currently, steel is not the most burdensome material in construction projects. According to the sector’s inflation indicator, the National Construction Cost Index (INCC), rebar saw a 5.84% increase over the past 12 months, compared to a 7.32% overall indicator by March. Ana Maria Castelo, project coordinator at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), noted that although other materials saw higher increases, such as PVC pipes (17.6%) and concrete blocks (8.12%), steel is extensively used in construction, so any increase is felt in the sector.
In addition to rebar, used in building foundations and infrastructure structures, steel mesh—which is placed inside the walls of low-income housing—is gaining ground, particularly in the sector that has grown the most in the country. As Mr. Klavdianos explains, this material is key for the reinforced concrete wall construction system, the most used in MCMV, because it reduces project completion time—the faster they deliver it, the quicker the companies receive funds from Caixa Econômica Federal.
The steel industry has moved to request the government to increase the import tax on wire rod, a type of steel that forms the basis for mesh—in other specifications, it is also used to make nails and wires. The matter is currently under study. According to the CBIC, 172,000 tonnes of wire rod were imported by September from the same countries producing rebar, while the domestic industry sold 1.2 million tonnes during the same period.
According to the director, despite government support for the national steel industry, increasing import costs would lead to a general rise in material prices, directly impacting construction costs and the attractiveness of the MCMV, one of its main programs.
Meanwhile, other crucial sectors for steel consumption, such as machinery and equipment, are showing reduced growth. The segment claims that rising input costs, especially domestic steel, compromise its competitiveness.
In an interview with Valor, José Velloso, executive president of ABIMAQ, said the machinery and equipment sector has been reducing its revenue—and therefore its steel demand—over the past decade, reflecting the segment’s contraction in the country. According to him, most companies are not large enough to buy directly from steelmakers due to the volume required. Over 90% of manufacturers source from distributors, paying higher prices.
“Most companies in the sector do not import steel; they are medium-sized, with a transaction volume around R$100 million. They don’t meet the minimum volume,” he explained. According to the executive, the price of the input in Brazil compared to international prices is the factor most affecting competitiveness. “The price of rolled steel increased by 12% to 17% from May 2024 to January 2025,” he pointed out.
Other representative entities, such as ANFAVEA (National Association of Vehicle Manufacturers), also advocate for local producers to lower their prices, arguing that the cost of domestic steel inflates final products and undermines competitiveness against international players. When contacted, ANFAVEA declined to comment. In this scenario, the price gap between Brazilian and international steel has gained prominence.
On the other hand, Instituto Aço Brasil—representing the country’s major steelmakers—has stated that production costs are higher due to factors like tax burdens, electricity, and logistics. Moreover, Chinese steel is subsidized by the Beijing government. The entity declined to comment on the matter.
Analyzing foreign trade data on steel imports, Rodrigo Scolaro, an economist at GEP Costdrivers, highlighted the increase in Chinese steel imports, particularly in flat steel used for industrial processes like machinery and automobile manufacturing.
“When we talk about industries importing [steel], that involves the parts industry. Last year, we had import quotas in Brazil that did not meet the desired result of curtailing imports,” he said.
According to Mr. Scolaro, while steelmakers are pressuring the government for trade defense measures, auto parts and automakers are working in the opposite direction, advocating against additional taxes on imported steel.
When contacted, SINDIPEÇAS, representing the auto parts industry, declined to comment.
The government is closely monitoring the situation. Discussions are underway in the Ministry of Development, Industry, Trade, and Services (MDIC) about potential safeguards or anti-dumping tariffs to curb the rise of imported steel, but no decision has been made yet.
*By Robson Rodrigues and Ana Luiza Tieghi — São Paulo
Source: Valor International
Report mentions Brazil in six of its 397 pages; Trump aides forecast tariffs of 20% or higher
04/01/2025
The United States accused Brazil and several other countries of imposing numerous barriers against American products, in a 397-page report released on Monday (31) by the Office of the United States Trade Representative (USTR), just two days before the sweeping tariff hike announced by President Donald Trump, which he has called “Liberation Day.”
In Washington, D.C., Mr. Trump’s aides seem convinced the president is determined to impose higher tariffs. The tariff increases could reach 20%, impacting virtually all of the U.S.’s trade partners. However, aides admitted they did not know the final scope of the plan to be announced by Mr. Trump. Negotiators who have been in Washington said they would not be surprised if the tariff hike reaches 25%.
On this so-called “Liberation Day,” the “reciprocal tariffs” regime could generate an additional $600 billion per year in revenue for the U.S., or $6 trillion over a decade, according to Peter Navarro, a hardline advisor close to Mr. Trump. On top of this, an additional $100 billion per year would come specifically from a 25% tariff on foreign automobiles.
Although Brazil argues it has a trade deficit with the U.S., nearly six pages of complaints against Brazilian trade practices in the USTR report pave the way for higher tariffs on Brazilian products under the principle of reciprocity.
The Trump administration argued in the document that Brazil “imposes relatively high tariffs on imports across a wide range of sectors, including automobiles, automotive parts, information technology and electronics, chemicals, plastics, industrial machinery, steel, and textiles and apparel.”
It also complained that Brazil’s bound tariff rates are often much higher than the applied rates, creating significant uncertainty for U.S. exporters in the Brazilian market, as “the government frequently modifies tariff rates within the flexibilities of MERCOSUR.” The USTR added: “The lack of predictability with regard to tariff rates makes it difficult for U.S. exporters to forecast the costs of doing business in Brazil.”
The “2025 National Trade Estimate Report” was submitted to Mr. Trump and Congress. Jamieson Greer, head of the USTR, said that no American president in modern history had recognized the comprehensive and harmful foreign trade barriers faced by U.S. exporters more than President Trump. He added that, under the president’s leadership, the administration was working to address what he sees as unfair and non-reciprocal practices, seeking to restore fairness and put American companies and workers first in the global market.
The USTR noted that trade barriers are not fixed in their definition but can broadly include “laws, regulations, policies, or government practices—including non-market policies and practices—that distort or impair fair competition.” These include measures that protect domestic goods and services from foreign competition, artificially promote exports of specific domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights.
In the pages dedicated to Brazil, the U.S. highlighted ethanol tariffs as the primary barrier. It noted that between 2011 and 2017, the bilateral ethanol trade was virtually duty-free. However, Brazil then imposed tariffs, initially at 20%, followed by the establishment of a quota that reduced what had been “robust” trade, and in 2018 set the tariff at 18%.
“The United States continues to engage with Brazil to lower its ethanol tariff to provide reciprocal treatment for trade in ethanol between the United States and Brazil,” the document said.
The report also raised other complaints. One relates to the Industrial Product Tax (IPI) of 16.25% ad valorem applied to cachaça, while other alcoholic beverages, including U.S. imports, are subject to a 19.5% IPI.
It noted that, in the audiovisual sector, Brazil imposes several taxes on foreign products that do not apply equally to domestic products. It also pointed out that remittances to foreign producers of audiovisual works are subject to a 25% withholding tax.
The USTR complained that Brazil restricts the entry of certain types of remanufactured goods, such as earthmoving equipment, automotive parts, and medical equipment. With a few exceptions, Brazil generally prohibits the importation of used consumer goods.
It also mentioned automatic and non-automatic import licensing, inconsistent documentation requirements for importing certain types of goods, regulations on biofuels, sanitary and phytosanitary barriers, and obstacles to foreign companies’ participation in government procurement processes. Furthermore, it questioned Brazil’s enforcement of intellectual property rights, efforts to combat piracy, and barriers to the acquisition of services and digital trade.
Ongoing dialogue
Talks between Brazil and the U.S. continue. A phone call was scheduled for Monday (31) between Foreign Minister Mauro Vieira and the USTR head, Jamieson Greer. The call was seen as part of these ongoing negotiations, but no major breakthrough was expected. Neither side issued a statement about the content of the conversation or whether it actually took place.
As Valor reported on Saturday, in the midst of uncertainty in Washington, American signals pointed to specific issues involving Brazil.
The country is unlikely to escape new tariffs. Mr. Trump—and not only him in Washington—is fixated on Brazil’s ethanol import tariff of 18%, compared to 2.5% in the U.S. When he signed the executive order to prepare reciprocal tariffs, the first country he mentioned was Brazil, and the first product was ethanol.
On Wednesday, no exceptions were expected in the case of steel—meaning there would be no quotas requested by Brazil, at least initially. It remains unclear whether there will be exceptions for other so-called reciprocal tariffs. Six days ago, Mr. Trump said he did not want “too many exceptions” in the package—but he could always change his mind at the last minute.
A potential deal trading lower ethanol tariffs in Brazil for a quota on U.S. semi-finished steel exports will likely remain on the radar in Brasília and Washington after April 2.
*By Assis Moreira — Geneva
Source: Valor International
Agreement includes supplying marine fuel blends and studying new export, import, and cabotage routes
03/28/2025
Vast Infraestrutura, the liquid bulk logistics subsidiary of Prumo Logística, and biodiesel producer Be8 have signed a memorandum of understanding (MoU) to explore the development of the marine biofuel market at the Port of Açu, located in São João da Barra, Rio de Janeiro state. The agreement, which will remain in effect for up to two years, involves the use of infrastructure provided by Vast to connect Be8 and fuel distributors with clients operating at the port.
The companies aim to supply vessels docking at Açu with marine fuel (bunker) blended with biodiesel—or even pure biodiesel (B100). Currently, Brazil’s National Agency for Petroleum, Natural Gas and Biofuels (ANP) allows up to 24% biodiesel (B24) to be blended into marine fuels such as marine gas oil (MGO) or heavier intermediate fuel oil (IFO), without requiring engine modifications.
The partnership will assess the potential use of the Açu Liquid Bulk Terminal, a facility whose construction is set to begin in April and which has been designed to be flexible and scalable in line with market demand.
According to Vast’s commercial director Eduardo Goulart, roughly 7,000 vessels currently operate through the Port of Açu each month—primarily for oil transshipment—and most of them do not use biofuels. “Açu is naturally a hub for marine fuel, and our clients are already seeking low-emission alternatives,” Mr. Goulart said.
Those 7,000 vessels represent a potential demand of about 30,000 tonnes of biodiesel per month, assuming a 24% blend ratio with the average 120,000 tonnes of monthly marine fuel distributed at the port.
“That matches the output of our Be8 plant in Passo Fundo, Rio Grande do Sul. It’s a significant volume,” added Leandro Zat, Be8’s vice president of operations. The plant produces about 39 million liters of biodiesel per month—approximately 30,000 tonnes. Each tonne of biodiesel is estimated to reduce 2.86 tonnes of carbon dioxide emissions.
If the studies confirm technical and market feasibility, supply would likely begin with B24 blends and gradually increase to B100 over time, according to Mr. Zat. “There’s growing demand for maritime decarbonization, and I’m sure Vast, Be8, and other companies aligned with this purpose are ready to meet it. These are companies walking the talk,” he said.
The companies will also evaluate whether the Port of Açu could become a hub for importing raw materials used in biodiesel production or a new base for biodiesel exports and coastal shipping, which would improve logistical efficiency.
In addition to Vast Infraestrutura, Prumo Logística also has a joint venture with British oil major BP called Efen, focused on producing renewable fuels—particularly hydrotreated vegetable oil (HVO), also known as green diesel.
The MoU comes just months after the enactment of Brazil’s “Fuel of the Future” law, which mandates minimum blending percentages for biofuels in fossil fuels.
*By Fábio Couto — Rio de Janeiro
Source: Valor International
Monetary authority Chief Gabriel Galípolo says unanchored expectations require “greater effort”; institution sees 70% chance of inflation above target in 2025
03/28/2025
The persistence of inflation and the perception that it will remain above the target has not only led to a sharper increase in Brazil’s benchmark interest rate, the Selic, but may also require it to stay high “for longer,” officials from the Central Bank said on Thursday (27).
“We talk a lot, we write a lot, we are aware that, with expectations unanchored at the current level, the Central Bank’s effort needs to be greater,” said Central Bank Chair Gabriel Galípolo during a press conference on the Monetary Policy Report. “That is precisely why we have moved forward and continue in a cycle that has pushed interest rates to historically high levels.”
It was the first time Mr. Galípolo took part in presenting the report — which replaced the Inflation Report — as head of the monetary authority.
“When expectations are unanchored, interest rates must be higher, as we are seeing in this cycle, and for longer — that is the second dimension [of the adjustment],” said Diogo Guillen, the Central Bank’s director of economic policy, during the same press conference.
Mr. Guillen echoed what had been written in the minutes of this month’s Monetary Policy Committee (COPOM) meeting, published on Tuesday. The document noted that long-term unanchored expectations make it harder to bring inflation back to the target and require “a tighter monetary policy and for longer than would otherwise be appropriate.”
In its baseline scenario, the Central Bank projects inflation of 5.1% this year and 3.7% in 2026. Inflation would only approach the continuous target of 3% in the third quarter of 2027, when it is expected to fall to 3.1%.
Mr. Galípolo said the Central Bank knows that, in the short term, it will face inflation above the target and, therefore, more contractionary interest rates. The monetary authority sees a 70% chance of the IPCA consumer price index ending this year above the upper limit of the target range (4.5%) and zero probability of falling below the lower limit. For 2026, it estimates a 6% chance of inflation falling below the lower limit and a 28% chance of exceeding the upper limit.
Mr. Galípolo avoided giving any hints about COPOM’s next steps. Last week, the committee signaled a further increase in the Selic rate at its May meeting, but likely smaller than the hikes made at the two previous meetings. Last week, the COPOM raised the Selic from 13.25% to 14.25%.
The signal of a smaller hike left open the possibility of an increase of 25, 50, or 75 basis points. Market odds currently favor a 50-bp hike, though a 75-bp increase remains on the table.
When asked about how he viewed market bets, Mr. Galípolo refrained from giving a clear signal. “If we were convinced, we would have written that [in the minutes],” he said. “I believe the minutes are still quite valid, they’re not outdated. We want to preserve these degrees of freedom to be able to make that decision at the right time.”
However, the Central Bank chief made it clear that the monetary tightening is not over. “For all the existing reasons, the cycle needs to be extended. However, due to the uncertainties, to a lesser extent. We can only provide guidance for the next meeting about what we intend to do,” he said.
Mr. Galípolo also gave further clarification on why the COPOM’s statement and minutes referred to the “lags inherent to the monetary tightening cycle” to justify the signal of a smaller Selic hike at the next meeting.
“We are now entering a level of interest rates that is contractionary with some certainty,” he said. According to him, the Central Bank is monitoring economic activity data and other indicators, such as expectations, to “understand whether this level of monetary policy is contractionary enough.”
When asked whether the impact of the new payroll-deductible loan program for private-sector workers had been factored into the Central Bank’s projections, Mr. Galípolo said it had not and explained that several uncertainties remain.
One of them is whether the measure will result in a new flow of credit or simply a replacement of old debt with new debt. He said he did not see the program as a government initiative to stimulate the economy at a time when the Central Bank is seeking to cool it down to lower inflation. “It is a measure more focused on structural rather than cyclical issues,” he said.
He also noted that the bill exempting workers earning up to R$5,000 per month from income tax had not been considered in the Central Bank’s projections either.
*By Gabriel Shinohara, Alex Ribeiro, Estevão Taiarand Anaïs Fernandes — Brasília and São Paulo
Source: Valor International
Besides Brazilian auto parts shipped to the U.S. and used in Mexican car plants, automakers may redirect investments to American factories
03/28/2025
Import tariffs in the automotive industry, already in effect or under discussion by Donald Trump’s administration, are expected to impact Brazil as well. The United States and Mexico are the second- and third-largest export markets for Brazil’s auto parts industry, respectively. Together, they accounted for $2.29 billion in 2024, equivalent to 29.2% of the Brazilian sector’s total export revenue.
The 25% tariff imposed on vehicles imported by the U.S. is already having an effect, as Brazil supplies components to feed Mexico’s car assembly lines. With $923 million in shipments, Mexico represented 11.8% of Brazilian auto parts export revenue in 2024.
The situation is likely to worsen once the U.S. government defines tariffs for imported auto parts, as it has already signaled. If implemented, these new tariffs would make Brazilian parts more expensive in the American market.
In 2024, Brazil exported $1.37 billion worth of auto parts to the U.S., which accounted for 17.5% of the industry’s export revenue that year. The U.S. ranked behind only Argentina, which generated 34.6% of Brazil’s auto parts export income.
The sector is bracing for further bad news. In a statement, the National Association of Auto Parts Manufacturers (SINDIPEÇAS) said it views the measures “with concern.” The organization noted that after tariffs on cars, “some auto parts will also face additional tariffs weeks later, with the possibility of more items being added to the initial list.” SINDIPEÇAS leadership said it is “awaiting the full details of the legislation to assess the potential impacts more thoroughly.”
The effects of the new tariffs on Brazil are not limited to the auto parts industry. Although vehicle plants in Brazil do not export to the U.S. — the world’s second-largest car market — the new measures are expected to have a significant financial impact on automakers, potentially affecting their investment capacity worldwide, including in Brazil.
Moreover, the need to change manufacturing strategies, increasing production in the U.S. as Mr. Trump intends, could also lead automakers to redirect more investment to American factories, reducing the flow of resources to other countries with strong auto industries, such as Brazil.
A senior executive at a major automaker operating in Brazil said there is no doubt the impact will be significant, especially on Mexico. Nearly 80% of vehicles produced in Mexican factories are destined for the U.S. In 2024, 2.8 million vehicles crossed the border — more than Brazil’s entire production of 2.54 million units that year.
Many vehicles manufactured in Mexico are designed to meet the preferences and purchasing power of U.S. consumers. They are therefore larger and more luxurious than models exported to Brazil. Under a free trade agreement, 10% of the vehicles imported by Brazil in 2024 came from Mexico.
With nearly 4 million vehicles produced in 2024, Mexico ranked as the world’s fifth-largest vehicle producer, behind China, the United States, Japan, and India. Brazil ranked eighth. Mexico is also the fifth-largest vehicle exporter in the world, trailing Germany, Japan, the U.S., and South Korea.
Brazilian steel
According to data from the Mexican Automotive Industry Association (AMIA), Mexico has 37 plants manufacturing vehicles, engines, and transmissions. Most belong to companies that also operate in the U.S. and Brazil, including American, European, and Asian firms, employing a total of 84,000 workers.
The industry’s concerns are not limited to potential tariffs on auto parts and the existing tariffs on vehicles. A few days ago, Márcio de Lima Leite, president of the National Association of Motor Vehicle Manufacturers (ANFAVEA), said he is also concerned about additional tariffs on Brazilian steel.
“Automakers can only be strong if every link in the chain is strong. A strong steel industry ensures higher volume and lower costs,” he said.
Some, however, remain optimistic. An industry analyst who asked not to be named believes there is still room for negotiation between automakers and the Trump administration. Under this scenario, automakers could commit to increasing production at U.S. plants in exchange for a government commitment to reduce or postpone the tariffs.
In early March, Mr. Trump agreed to delay tariffs on vehicles by one month after receiving a phone call that included the CEOs of General Motors, Ford, and Stellantis.
*By Marli Olmos – São Paulo
Source: Valor International
Minutes of last meeting show Monetary Policy Committee expects pass-through on industrialized goods of dollar’s recent appreciation against Brazilian real
03/25/2025
Minutes of the last meeting of the Monetary Policy Committee (COPOM) show Central Bank officials expects the recent appreciation of the dollar against the real to affect industrial prices in the coming months, and tat higher food prices could contaminate other sectors.
“Regarding industrialized goods, the recent exchange rate movement has pressured prices and margins, already reflected in wholesale price increases, suggesting further pass-through to retail prices in the coming months,” the document states.
COPOM also noted that “food prices remain elevated and are likely to spread to other prices in the medium term due to significant inertial mechanisms within the Brazilian economy.”
In terms of service prices, the committee observed that they exhibit greater inertia, staying above the level compatible with meeting the target, and “accelerated in the most recent observations within a context of a positive gap.”
Overall, the short-term inflation outlook remains challenging, according to the committee. “It was highlighted in the short-term analysis that, if the reference scenario projections materialize, the twelve-month accumulated inflation will remain above the upper limit of the target tolerance range for six consecutive months, starting from January this year,” the minutes read.
COPOM reiterated that, “with the June inflation this year, it would constitute a failure to meet the target under the new framework of the target regime.”
Last week, COPOM raised the benchmark interest rates to 14.25% from 13.25% per annum and indicated a forthcoming increase of a smaller magnitude.
In the minutes, COPOM emphasized its decision to communicate three key points during last week’s meeting: that the monetary tightening cycle is not yet over, that the next increase would be of a smaller magnitude, and to indicate only the direction of the next move.
“The Committee, in its communication, chose to combine three signals regarding the conduct of monetary policy, should the expected scenario be confirmed,” the minutes state.
“Firstly, it judged that, given the adverse scenario for inflation dynamics, it was appropriate to indicate that the cycle is not over,” it continues.
“Secondly, due to the inherent lags in the ongoing monetary cycle, the Committee also deemed it appropriate to communicate that the next move would be of a smaller magnitude.”
Finally, it states that “furthermore, given the high uncertainty, it opted to indicate only the direction of the next move.”
In the minutes, COPOM also highlighted that a scenario of unanchored expectations for longer terms makes the inflation convergence scenario more challenging, which “requires greater monetary restraint for a longer period than would have been appropriate otherwise.”
According to the minutes, “the inflation convergence scenario becomes more challenging with unanchored expectations for longer terms and requires greater monetary restraint for a longer period than would have been appropriate otherwise.”
In the document, the committee also noted that inflation expectations measured by different instruments and collected from various groups of agents continued to rise “across all terms” and indicate additional unanchoring. According to the committee, this scenario makes the inflation outlook “more adverse.”
“The unanchoring of inflation expectations is a common concern among all committee members and must be addressed. It was emphasized that environments with unanchored expectations increase the cost of disinflation in terms of economic activity,” the document describes. “Looking ahead, the Committee will monitor the pace of economic activity, fundamental in determining inflation, particularly service inflation; the exchange rate pass-through to inflation, following a period of greater exchange rate volatility; and inflation expectations, which have shown additional unanchoring and are determinants for future inflation behavior,” it continued.
“It was emphasized that inflationary pressures remain adverse, such as the positive output gap, higher current inflation, and more unanchored inflation expectations,” COPOM also wrote.
The COPOM minutes also highlighted that data from recent months indicate signs of an “incipient moderation of growth,” but stressed that caution should still be exercised in drawing conclusions about economic activity.
In the document, COPOM pointed out that the baseline scenario involves an economic activity slowdown and that this movement is part of the transmission process of interest rate hikes and “a necessary element for inflation convergence to the target.”
“The Committee will continue to monitor economic activity and emphasizes that cooling aggregate demand is an essential element of the process of rebalancing supply and demand in the economy and convergence of inflation to the target,” it highlighted in the minutes.
Thus, the committee emphasized that these signs of incipient moderation align with its baseline scenario and further reinforced “that some more recent indicators, such as services, industry, or employed population, have indicated growth moderation after extraordinary resilience in the labor market and economic activity.”
COPOM then highlighted that the seasonally adjusted GDP grew by 0.2% in the last quarter of the previous year compared to growth of 1.3% in the second quarter and 0.7% in the third. “On the same comparative basis, on the side of aggregate demand, there was a reduction in household consumption after a sequence of thirteen consecutive increases,” the minutes highlighted.
In emphasizing the need for caution in conclusions about activity, the committee highlighted elements from the past, present, and future. In terms of the past, COPOM pointed out that the data are subject to revisions and seasonal effects. In the previous minutes from the January meeting, the committee noted that the data at the time were high-frequency and required caution in analysis due to seasonality and revisions.
For the present, the committee highlighted that there are “contemporary mixed data that are not unanimous in one direction.” For the future, COPOM highlighted that a “strong agricultural growth in the first quarter with possible repercussions for other sectors” is expected.
The minutes also addressed perception data, such as confidence indicators and credit sentiment surveys. COPOM highlighted that they suggest a greater slowdown than observed in objective data. “Moreover, the coincident objective data have shown mixed results depending on the sector or survey,” the document pointed out.
The committee also noted a marginal reduction in the employed population, but within a scenario of low unemployment and high earnings. “Even though recent data suggest some moderation, the labor market remains heated.”
*By Alex Ribeiro and Gabriel Shinohara, Valor — São Paulo and Brasília
Source: Valor International
Increasing taxation on high income does not ensure a change in the tax model, experts say
03/20/2025
The proposal announced by the Lula administration to reform income tax, affecting both those earning up to R$5,000 and high-income taxpayers, places Brazil at the heart of a debate that has gained momentum in recent years.
The discussion revolves around adopting progressive taxation where wealthier individuals pay proportionally more taxes than those with lower incomes. Once primarily advocated by inequality scholars, the idea of increasing taxes for those at the top of the income pyramid has now crossed borders, experts say.
The scale of income disparities became clearer through the research of French economist Thomas Piketty, using income tax data in his book “Capital in the Twenty-First Century,” which has helped draw more attention to the issue, according to Marcelo Neri, director of the Center for Social Policies at the Fundação Getulio Vargas (FGV Social).
Even among higher-income individuals, the idea seems more acceptable than in the past, according to tax experts. That is partly because the proposed 10% minimum effective tax rate on dividends is below the previously considered 20% rate.
However, greater attention in public debate does not guarantee changes in the country’s tax structure. Economists and lawyers foresee intense battles to modify and limit the proposal, not ruling out the possibility of a total standoff in Congress. Questions about the efficiency of public spending could add renewed pressure to these negotiations, they point out.
“Over the past decade, the way inequality is perceived has changed. With Piketty’s studies, we can better see income disparities and the top of the income distribution. The inequalities are even greater than anticipated,” Mr. Neri said.
In 2020, the taxation of large fortunes was included in the final document of the G20 Summit under Brazil’s presidency of the group. Luiza Nassif Pires, co-director of the Center for Research in Macro-Economics of Inequality (MADE/USP) and professor at the Institute of Economics at UNICAMP said the Brazilian government’s announcement focuses on a specific issue—alterations in income tax rather than overall wealth.
“This announcement involves a tax on income, slightly different from a tax on wealth. It makes sense domestically, doesn’t require global coordination, and aligns with what other countries are already doing. The proposal simply attempts to reverse the regressivity of Brazil’s tax system.”
The public debate is further reinforced by the support of liberals like former Central Bank president Arminio Fraga and contributions from individuals like Neca Setubal, heir to Itaú with a life dedicated to social causes, and Elie Horn, founder of Cyrela and one of two South American participants in Giving Pledge, a commitment to donate at least half of one’s fortune.
“The perception is that sentiment has changed. A year ago, a tax for high-income earners reaching Congress was unimaginable. Today, the idea seems more acceptable. However, many high-income individuals believe they are already taxed on these dividends. This sentiment will resonate in Congress, with lawmakers facing pressure,” says a tax attorney from a nationally operating firm.
Despite the broader debate on inequality and the celebration of the government’s proposal, Marcelo Neri admits he is “not particularly optimistic” about its progress through Congress and foresees “a long road ahead”:
“It is not a consensus agenda. Brazilian society has become accustomed to higher levels of inequality. The initial reaction was positive, but I don’t see it as an easy task. There is greater awareness of inequality, but the pendulum can swing when we look at the international landscape.”
Resistance in the legislative debate is also expected by Ms. Pires, given the history of easier approvals for tax deductions than for tax increases.
“Taxation should be understood as part of a social pact and not just as a tax burden. Decisions not to pay taxes have very high costs as well,” she pointed out, emphasizing the importance of maintaining the government’s revenue-generating capacity and the social commitments established by the Brazilian Constitution, such as public education and healthcare.
Research by MADE/USP reveals income tax exemption for those earning up to R$5,000 is unlikely to affect inequality because it targets a segment of the population not at the bottom of the income pyramid. Under the 2025 Income Tax table, these individuals would have a monthly income of up to R$2,824.
“A large portion of the population falls within the income range of two times the minimum wage and is exempt from income tax. The current measure targets the middle of the income range. Therefore, to have an impact on inequality, it must be paired with high-income taxation,” says the co-director of MADE/USP.
Visiting professor at FGV Law Rio, tax attorney Gabriel Quintanilha questions the choice of the R$50,000 per month threshold to define the high-income population. With an exemption for those earning up to R$5,000, he sees a small gap between the two income levels.
Moreover, he argues that the government’s proposal is “a small patch” in a tax system that requires a comprehensive update. “I’m not against taxing high incomes, but a broader reform of income taxation, for both corporations and individuals, should be discussed.”
Gustavo Carmona, leader of international taxes at EY Brasil, perceives a lack of clarity in areas such as non-resident investors: “There is an expectation of credit between what has been withheld and the 34% rate, but it doesn’t specify how this credit will be constituted. Non-resident investors cannot file a compensation report.”
*By Lucianne Carneiro — Rio de Janeiro
Source: Valor International