Eyes wide shut

CAUSE: With oil prices undecided due to the uncertainties surrounding the conflict between the US and Iran, we are navigating the economic landscape almost blindfolded. It is difficult to map out any scenario in an environment as volatile as the one we have seen in recent weeks. Some impacts are already more visible and tangible, such as a potential rise in fuel prices, which has already reverberated in official inflation data (see the March IPCA released last week). Even so, it is too early to say whether this trend will continue. Furthermore, there is a local asset that seems to be emerging unscathed from all this external risk aversion—hello, dollar! For how long? We don't know that either.

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CONSEQUENCE: In an environment like this, the tendency is for increased caution and frequent scenario revisions, both by the market and economic authorities. Oil volatility could end up contaminating future inflation expectations (and it already is!), especially if there are more persistent pass-throughs to fuel prices, which, in turn, could limit the room for interest rate cuts or even require a more conservative stance from the Central Bank. Regarding the exchange rate, even though the real has shown resilience so far, this movement may not be sustainable if the external scenario deteriorates or the conflict intensifies, bringing pressure back onto the currency. Ultimately, the main effect is an environment of greater uncertainty, which complicates investment decisions, reduces predictability, and keeps projections—such as those in the Focus report—more sensitive to any new noise in the global landscape.

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