Does softer labor market effect Brazil's growth and inflation?

Wages are seeing downtrend, but not necessarily affecting inflation. The Copom acknowledges the deterioration of the labor market and despite stating that wage adjustments are now closer to its estimate of productivity gains (i.e., contraction).

The Copom is still not confident that lower wages will necessarily transmit to lower inflation in the medium term. Wage negotiations in Brazil tend to consider past inflation rather than inflation expectations, which suggests that the Copom thinks that salaries should continue contributing to inflationary pressures.

Still, there are effects on growth from the softer labor market. The Copom has revised its real GDP growth forecast to -1.1% in 2015, from -0.5%, on the back of a 0.5% contraction of household consumption this year, reflecting lower employment and still-depressed confidence. 

On the other hand, a stronger global growth (although uneven among countries) and a weaker multilateral exchange rate means that net exports should positively contribute to growth this year (1.5pp in its estimates). Taking that into consideration, the Copom expects that the output gap will continue to be negative for the foreseeable future, helping to reduce inflationary pressures