The 2015-16 recession and double-digit inflation

Brazil's economy tipped into recession in 2014 and deteriorated sharply through 2015, with real GDP contracting by roughly 3% that year as a wave of household and government-bank-driven credit expansion earlier in the decade unwound, compounding the fallout from the Operation Car Wash corruption investigation that froze major infrastructure and construction spending. The Banco Central do Brasil's December 2015 Inflation Report recorded annual inflation at 10.7%, far above the 4.5% target and even above the tolerance band's 6.5% ceiling, driven by a weakening real, administered-price adjustments, and the inertial effects of widespread wage and contract indexation. Facing this combination of double-digit inflation and a deepening recession, the central bank raised its benchmark Selic rate to 14.25% by July 2015 and held it there through much of the following year, prioritizing the inflation target over near-term growth even as unemployment climbed and the downturn became, by most measures, the most severe in Brazil's modern history. The Inflation Report's own projections at the time anticipated inflation easing only gradually, to around 6.3% in 2016 and 4.9% by 2017, underscoring how slowly the central bank expected the price shock to unwind.