Why Is Inflation Set to Worsen in 2026?
Three shocks arrived on the exact same day. The World Bank released its October Commodity Markets Outlook, projecting a 23% rise in the overall commodity index in 2026. On that same Wednesday (October 28), Confaz—the national council of state finance secretaries—approved an increase in the ICMS state value-added tax on gasoline, diesel, and cooking gas, taking effect in February 2027. Meanwhile, Brazil's National Institute of Meteorology (Inmet) maintained its forecast for an intensification of El Niño in November, threatening summer crops. None of these three developments is a one-off shock.
Up 2.22% on the session; Middle East tensions and Black Sea disruptions are squeezing global inventories.
Energy up 32%, food up 10%—the second-highest level since 2013.
Above the 4.5% ceiling—and the Focus survey projects 5.19% for year-end.
Crude oil has traded for weeks at its highest level since 2022, driven by the Middle East conflict and logistical bottlenecks in the Black Sea. The impact reaches Brazil through the cost of fuels, fertilizers, transportation, and electricity—and to track how each trading session affects prices in real time, the Brent crude price quote is available on the website.
What the World Bank Published Today on Oil and Commodities
The October Commodity Markets Outlook, released this Wednesday (October 28), projects that Brent's annual average in 2026 will reach $91 per barrel—up from an average of $69 in 2025—before easing to $79 in 2027 under its baseline scenario. The World Bank explains that the conflict in the Middle East has reduced global oil inventories and that damage to Russian production infrastructure in the Black Sea persists. Together, these factors are expected to drop global oil supply by 5.2% in 2026, according to the report—the steepest decline in over four decades outside of 2020.
On the food front, El Niño combined with disruptions in grain shipments is expected to push global agricultural prices up by 10% in 2026 and another 7% in 2027, compounding to an 18% increase over two years. In an adverse scenario—characterized by more intense conflicts and simultaneous shocks—the report indicates that food prices could climb 12% above the baseline projection, surpassing 2022 levels. The spike in Brent crude to $110 on October 17 had already signaled that this trajectory was underway.
The ICMS Tax Hike Signed for February 2027
Confaz approved today the mandatory annual adjustment of fixed ICMS tax rates on fuels, calculated using average ANP (National Agency of Petroleum, Natural Gas and Biofuels) prices from February to September 2026 compared to the same period in 2025. The new rates take effect on February 1, 2027, and were formalized in ICMS Agreements 127/2026 and 128/2026, published in the federal official gazette this Wednesday.
Diesel faces the largest increase—R$ 0.13 more per liter—because derivative prices rose more sharply during the ANP reference period. For a 13-kilogram cylinder of cooking gas, the math works out to R$ 0.91 more. It is worth noting the contrast: in early October, the federal government temporarily cut federal fuel taxes—state governments are now moving in the opposite direction for 2027, and the October tax relief will expire before the new tax rate takes effect.
Diesel goes far beyond pump prices. It is the fuel that powers freight transportation, and its rising cost feeds broadly into the IPCA index: higher freight rates show up on store shelves as upward pressure across virtually all categories of the index. The federal government maintains a subsidy of R$ 2.12 per liter to try to contain immediate pass-throughs, but the ICMS tax is baked into the calculation received by the subsidized entity—meaning the effect is partially absorbed, not eliminated.
El Niño and Agricultural Credit: Pressures from Both Sides
Inmet updated its forecast for November: above-average rainfall in the South and drought in the North and Northeast. The APEC Climate Center assigns a 100% probability that a strong El Niño will persist through the end of 2026, and NOAA indicates an 81% chance the phenomenon will reach "very strong" status during the October-November-December quarter. Water scarcity has already caused R$ 860 million in damages in Paraná state, according to a local survey, resulting in quality losses for winter grain crops and planting difficulties for the summer harvest. Analysts point out that climate factors could add up to 0.8 percentage points to the food inflation index.
"My sense is that the government is taking away from agriculture with both hands."Octaciano Neto, founder of consulting firm Zera and former Secretary of Agriculture for Espírito Santo, speaking to Money Times regarding potential IOF financial transactions tax on LCAs (agribusiness letters of credit) and CRAs (agribusiness receivables certificates)
While El Niño drives up costs from a climate perspective, the government is considering levying the IOF tax on LCAs, CRAs, and tax-incentivized debentures—instruments that finance the agribusiness sector through the capital markets. A previous attempt (Provisional Presidential Decree 1,303 of 2025, proposing a 5% income tax on new issuances) was struck down by Congress. Now, the strategy would rely on a presidential decree, bypassing a legislative vote. Outstanding LCA volumes total R$ 563 billion and CRAs total R$ 176 billion—these fixed-income instruments attract investors precisely because of their tax exemption, and taxing them would reduce private credit availability for rural producers at a time when Selic interest rates are already making institutional credit more expensive.
What This Means for Fixed Income, FIIs, and Agribusiness
Fixed income and Tesouro IPCA+ bonds: higher inflation increases the nominal yields of these securities, but real rate volatility remains high as the market reprices fiscal risk. The October 23 Focus survey projects 2026 IPCA inflation at 5.19% and the year-end Selic rate at 13.25%—the central bank is cutting rates slowly enough to avoid unanchoring expectations, but three simultaneous new shocks could force a pause in the cycle. Track month-over-month variations via the real inflation dashboard to see when each pressure appears in the official index.
FIIs (Brazilian real estate funds): brick-and-mortar funds with lease agreements indexed to IPCA are favored by higher inflation theses. Paper-based FIIs (investing in CRI and CRA real estate and agribusiness receivables), however, face a double risk: higher interest rates compress asset prices, and any IOF taxation would make the underlying receivables backing their units less attractive. In agribusiness, the most relevant action now is monitoring whether the IOF decree is issued over the next 30 days—if it goes through, the spread on LCAs and CRAs will immediately widen, impacting both rural credit costs and portfolios holding these securities.
October IPCA inflation — Results released in November, marking the first reading to capture Brent trading above $100 for over a consecutive month. Warning trigger: a reading above 0.70% increases pressure on Copom to pause rate cuts at its November/December meeting.
IOF tax decree on tax-exempt bonds — Can be enacted at any time without going through Congress. If issued within the next 30 days, LCA and CRA spreads will widen immediately. Monitor statements from the Ministry of Finance.
El Niño in November — If Inmet confirms a "very strong" classification, soybean crop revisions arriving as early as November will drive food prices higher in the December IPCA reading. Follow Inmet's monthly bulletins.
Copom's November meeting — With IPCA above the ceiling and three new pressure fronts on the radar, a pause in rate cuts would signal that the central bank will not accommodate higher inflation; a rate cut would indicate the opposite—and the market is already divided on which scenario will prevail.
