BRASILIA, June 3 (Reuters) - Brazil's central bank is seeing demand-driven pressures contributing to inflation, Governor Gabriel Galipolo said on Wednesday, pointing to measures that exclude supply shocks, such as those linked to the Iran conflict.
The level of demand-driven inflation is inconsistent with the bank hitting its 3% target, he said.
Speaking by videoconference at a forum in Lisbon, Galipolo said services inflation, which is sensitive domestically, has reflected a resilient economy, with
historically low unemployment, record-high income and wage growth outpacing productivity, alongside consumption supported by credit.
"We do see the effects of supply shocks on prices, but several core measures that strip out those effects ... especially in services and other labor-intensive segments, show inflation running at levels clearly inconsistent with meeting the target," he said.
His remarks come as Brazilian banks have been trimming expectations for further monetary easing, citing a challenging domestic inflation outlook, with risks stemming not only from higher oil prices amid Middle East tensions, but also from domestic stimulus under President Luiz Inacio Lula da Silva ahead of the October election.
Policymakers began easing in March with a 25-bps cut, followed by another in April, bringing the Selic to 14.5%. Twelve-month inflation stood at 4.64% in mid-May.
"Inflation prospects in Brazil have worsened due to both supply and demand factors," XP said in a note on Wednesday, expecting two additional 25-basis-point cuts in the benchmark Selic rate to 14%, down from three cuts previously.
BTG Pactual took a more hawkish stance, forecasting a final 25-bps cut at this month's meeting, with the Selic held at 14.25% through year-end, versus a prior terminal rate of 13%.
BTG economists led by Tiago Berriel said the outlook could already warrant a pause, citing more adverse inflation readings, resilient activity, firm labor and credit data, and unanchored expectations, including for 2028.
(Reporting by Marcela AyresEditing by Rod Nickel)
