Brazilian Inflation Research Articles

Price and Wage Inflation in Brazil: An Empirical Analysis from 1999 to 2022

ABSTRACT This paper discusses the trajectory of inflation in Brazil after the adoption of the Inflation Targeting Regime, aiming to identify its main determinants from a post-Keynesian approach that points out the relevance of distributional conflict for inflation dynamics. A descriptive analysis of inflation behavior in Brazil is carried out, in which four distinct phases are identified: 1999–2004, 2005–2010, 2011–2015 and 2016 to mid-2022. Changes in the Extended National Consumer Price Index (IPCA) during these phases are explained by three main reasons: (i) imported inflation and exchange rate; (ii) administered prices; and (iii) wage inflation. Thus, it is argued that inflation in Brazil was mostly generated by cost pressures. We estimate Phillips curves that incorporate cost and demand elements in order to identify which of them exerted the greatest influence on the inflation rate as measured by the IPCA. The estimation was performed with Vector Error Correction (VEC) models from March 2013 to January 2022. A complementary model was estimated to investigate the long-term relationship between imported inflation and demand pressures on price inflation.

Taming inflation: the Brazilian experience of combatting inflation in the last quarter of the 20th century

In the context of a global inflationary spike, a retrospective view on the problem of curbing inflation in Brazil is becoming more relevant than ever. This paper aims at analyzing the measures of inflation targeting policies set in motion by the Brazilian economic stabilization plans over the last quarter of the XXth century. The commencement of “The Lost Decade” in Brazil negated the achievements of “The Brazilian Economic Miracle” which occurred in the first half of the 1970s: inflation hit an all-time high. The only viable solution that led Brazil out of the crisis proved to be the stabilization plan - named “The Real Plan” - carried out in three phases: fiscal adjustment, transition to the Real Value Unit and emission of a new currency - the Brazilian Real. The authors confine their attention to how Brazilian experience of taming inflation helps the country suppress current inflation surge.

Dynamics of inflation in emerging markets: Is it local or global?

This paper investigates inflation dynamics in emerging markets. We apply a multi-country model (GVAR) and a time-varying Granger causality test (TVGC) to examine the drivers of inflation in Brazil, China, India, Indonesia, South Africa, and Türkiye over the period 1980Q1-2022Q4. The aim is to ascertain whether these drivers are locally or globally determined and vary over time. The GVAR model results indicate that local and global factors drive domestic inflation, collectively contributing to inflationary pressures in emerging countries. The TVGC results, on the other hand, provide strong evidence of the causality from local and global factors to domestic inflation. Local factors appear to have a stronger influence than global ones, suggesting that local dynamics play a more significant role in explaining inflation in these countries. Consequently, globalization and economic/trade integration, seen as tools to suppress inflation, can turn into factors that cause inflation in the face of a supply shock such as the one caused by the pandemic.

Cash transfers and the Phillips curve: The case of Brazil during the pandemic

This paper investigates the linear and nonlinear effects of the pandemic period on the dynamics of the Brazilian inflation through the estimation of a hybrid Phillips curve. Despite the undisputed socio-economic benefits, cash transfers paid by the government to low-income families increased inflation, with an estimated coefficient similar in magnitude to the output gap. The backward-looking component decreased while the forward-looking component increased sharply, suggesting a shift in the price-setting behavior toward anticipating fluctuations in the business cycle. There was also a significant reduction in the flatness of the Phillips curve, as the output gap coefficient more than doubled during this period. These findings might be explained by the unprecedented combination of sectorial increases in demand, a decrease in aggregate supply, anticipated money supply growth, and loose monetary policy. They unveil an undesired side effect of cash transfers on inflation that adversely affected the purchase power of the program beneficiaries.

Singular spectrum analysis to estimate core inflation in Brazil

This paper presents a set of new core inflation measures for Brazil based on the Singular Spectrum Analysis (SSA) method. The measures are based on the official target used in the Brazilian inflation targeting regime. The period of analysis ranges from the beginning of the inflation targeting regime in 1999 and 2021. The SSA measures were compared to the inflation core ones used by the Central Bank of Brazil, through the evaluation of unbiasedness, short-term adjustment dynamics and predictive ability. The measures estimated by SSA meet the desired properties and have a greater predictive capacity than the other inflation cores.

Inflation and income distribution in Brazil from a Kaleckian perspective*

This article shows that income inequality and inflation in Brazil are multidimensional phenomena linked to the unemployment rate and to the foreign sector. Consequently, the relationship between inflation and income distribution depends on the source of inflationary pressures, as evident in the 2000 to 2020 period. This reflects significant differences in the dynamics of inflation in the tradable and non-tradable goods sectors and is consistent with the Kaleckian framework. Yet, a missing inequality puzzle is identified, suggesting that changes in the Industry sector’s relation with the foreign sector altered some of the relationships analyzed. The article also investigates the influence of the foreign sector on the intensity of the domestic distributive conflict in Brazil and discusses some implications of an intensified distributive conflict in terms of policies and regulations that alter the bargaining power of workers.

Food Inflation in Brazil in the Last Decade – Comparing Evolution Trends Before and During the COVID-19 Pandemic

Abstract The objective is to characterize food inflation in general and, particularly, the food items and agrifood chains, according to the level of exposure to foreign trade, degree of processing, and inflation indicators in nine metropolitan areas of Brazil between 2007 and 2022. Basically, the data used were surveyed by the Brazilian Institute of Geography and Statistics for the Broad Consumer Price Index (Índice de Preços ao Consumidor Amplo, IPCA). The study fully characterized the food inflation in Brazil between 2007 and 2022, which was aggravated during the Covid-19 pandemic. Food-at-home inflation was generalized among its household components. Items associated with animal protein tended to put the most pressure on food-at-home prices. Among the agrifood chains, the lowest price variations were observed in products with greater exposure to foreign trade. A greater price variation was observed for fresh or minimally processed food products compared to more processed food products. Among the nine cities studied, from all regions of Brazil, no major differences were found in the variations of food prices of all groups considered.

Pass-through of oil prices to Brazilian inflation: An analysis between 2014 and 2023

ABSTRACT The price of fuels, and consequently, the price of oil, is one of the elements of historical relevance for the general price level that the Brazilian population faces, given the country’s dependency on the road transportation mode for product distribution and the potential ripple effects that the oil price naturally exerts on other sectors of the economy. Therefore, the aim of the present study is to quantify the influence of oil prices on the overall price index of the Brazilian economy for the period between January 2014 and May 2023. To achieve this objective, a model based on a hybrid New Keynesian Phillips curve was constructed, and the estimation was performed using Structural Vector Error Correction (SVEC) models. As a result, we find that, although oil prices are not the most significant drivers of inflation, their influence is present, positive, and persists for a considerable number of periods.

Navigating retail inflation in Brazil: A machine learning and web scraping approach to the basic food basket

In response to the escalating challenges of global inflation, particularly in developing countries like Brazil, this study combines web scraping and machine learning to analyze inflation dynamics within the retail sector. By systematically real-time pricing and product data from a sponsor company and its four main competitors, we focus on Brazil's most consumed staple foods—beans, rice, sugar, and coffee. Our analysis reveals critical insights into how inflation impacts consumer choices and supply chain operations, highlighting the effectiveness of this approach in providing strategic solutions for managing retail sectors under economic stress. The findings highlight the effectiveness of this approach in providing strategic solutions for managing retail sectors under economic stress. Notably, we observed a 400% increase in sales volume for beans following a 50% price reduction and discovered coffee's price stability as a competitive advantage. Additionally, managerial insights emphasize the importance of diversified sourcing and strategic inventory management to mitigate the adverse effects of inflation.

Impact of Petrobras' price policy change on the brazilian economy:

This study examines the impacts on Brazilian inflation of the Petrobras price policy adopted in 2017, more specifically the transition to the Import Parity Price (IPP) policy in response to abrupt changes in West Texas Intermediate (WTI) crude oil prices. Using the Vector Autoregression Model (VAR), it is observed that the Petrobras price policy and the IPP, played significant roles in transferring oil price fluctuations to inflation. Prior to the IPP, government interventions strove to curb inflation, with positive impacts on inflation after its adoption. The findings highlight the relevance of reevaluating the Petrobras price ‎ policy in 2023 in order to safeguard the company's interests and underpin the nation’s economic stability. This study contributes to discussions on fuel policies in Brazil and how significantly they affect the transport sector.

Panel Data Analysis of the Impact of External Debt on Economic Growth and Inflation: The Case of Emerging Market Economies

This study aimed to analyze the impact of external debt on economic growth and inflation for emerging market economies for the period 1995-2020 using the panel data method. To this end, the study used the data on 12 countries listed in the Morgan Stanley Capital Index (MSCI) Emerging Markets Index. The results of the panel cointegration analysis showed that changes in external debt stock affect economic growth in the opposite direction and inflation rate in the same direction. According to the country-specific results of the panel cointegration analysis, external debt had a negative impact on economic growth in all countries except Mexico, Egypt, India, and Türkiye. External debt increased inflation in all countries except China, Egypt, India, South Africa, and Thailand. The Bootstrap panel causality test results showed a unidirectional causality from economic growth to external debt stock in China, India and Thailand, and a bidirectional causality in China. A unidirectional causality was also found from external debt stock to inflation in Colombia, and a unidirectional causality from inflation to external debt in China, India, Peru, and Thailand. Based on the cointegration analysis results, it is recommended that external debt should be used to finance more productive investments in order to ensure sustainable economic growth in Brazil, China, Colombia, Indonesia, Peru, Philippines, South Africa, and Thailand. The panel causality test results also showed that economic growth in China, India, and Thailand requires more external resources. Based on these results, it is recommended to reduce external debt in order to reduce inflation in Brazil, Colombia, Indonesia, Mexico, Peru, Philippines, and Türkiye.

Monetary policy transmission, productive activity, and inflation in Brazil: Does uncertainty matter?

This research paper aimed to assess the impact of uncertainties on the outcomes of monetary policy in Brazil after the adoption of inflation targeting. To this end, we adopted the methodology of vector autoregressions with an endogenous threshold (TVAR) and four distinct indicators to characterize regimes of high vs. low macroeconomic uncertainty. The analyzed sample varied from 2003 to 2021, with monthly data. Our results showed that uncertainty tended to increase during recessions in the country. Furthermore, in periods of higher instability, policy interest rate shocks exerted a lesser effect on aggregate production. However, the most significant influence of uncertainty occurred regarding inflation control, which was severely reduced when compared to more tranquil periods. Therefore, we concluded that uncertainty can harm monetary policy transmission in Brazil, especially for the adjustment of prices.

The Asymmetric Impact of Oil Price Dynamics on Inflation in Brazil

This study investigates whether oil price changes have asymmetric pass-through effects on inflation using Brazilian quarterly data from the first quarter of 2000Q1 through 2021Q4. It applies a nonlinear Autoregressive Distributed Lag (NARDL) model that can simultaneously decompose the price of oil into its partial sum of positive and negative components to account for both the short-run and long-run asymmetric behaviour of inflation. The empirical findings reveal that the pass-through of the oil price to inflation from the short to the long term has a nonlinear or asymmetric effect. It concludes that the monetary authority should consider the asymmetric effects of the inflation-oil price nexus.

Forecasting inflation time series using score‐driven dynamic models and combination methods: The case of Brazil

AbstractThis paper evaluates the inflation forecasting models of a small open economy. We compare forecasts of Brazilian inflation (consumer price index—IPCA) based on the generalized autoregressive score (GAS) approach with the forecasts reported in the Focus Bulletin (the Brazilian Central Bank's weekly consensus survey report), as well as with other benchmark models. We selected a restricted number of the variables used most in the literature to compose the forecasting models. Furthermore, based on a confidence set, we applied a wide range of combination methods to the forecast components aiming at improving the forecasting power. Point and density forecast tests were performed to verify the performance of the models. The results showed that the GAS models had good predictive performance for the IPCA, and it was possible to improve their accuracy by combining them with other models.

Alguns fatos estilizados sobre choques externos e surtos inflacionários no Brasil, 1951-1985

Abstract This paper studies the episodes of inflation upsurge in Brazil from 1951 to 1985, a period wherein Brazilian inflation rates were among the highest in the world. It identifies the episodes of inflation upsurge within this period and analyzes whether they were concomitant with and/or preceded by some type of external shock (exchange rate devaluations and/or commodity price shocks). Based on this relationship this paper identifies eight episodes of inflation upsurge and shows that seven out of these eight episodes followed such pattern. We show also that such analysis is strongly associated with the traditional structuralist Latin American inflation theory.

Analysis of food inflation in Brazil between 1996 and 2016

This article estimates the inflation in food and agricultural products in the last twenty years and analyzes its possible causes. In the decade of 2007 to 2016, the food prices tended to increase more than those of the general economy did. Other papers have already studied the change in the pattern of food inflation, although little was discussed about the possible causes of the increase which is the objective of this study. Due to public policies of income rise with real gains in the minimum wage, family allowances and retirement grants, the population did not perceive this silent crisis of food price increase. The rise in demand caused by China’s economic boom and increase in Brazilian domestic consumption as response to income rise in the last decade not followed by significant increases in productivity caused the rise in prices paid for agricultural products. Technological growth could mitigate this impact. However, in the more recent period it failed to have a positive effect on productivity of various agricultural products in Brazil.

Inflation persistence for product groups in Brazil using the ARFIMA-GARCH model

ABSTRACT This study uses ARFIMA-GARCH models and structural break tests to analyse the persistence of Brazilian inflation. Its main contribution is to carry out a disaggregated analysis for nine product groups. The main evidences found are: all price groups and aggregate inflation present a stationary behaviour with reversion to the long-term mean, but there are heterogeneities; aggregate persistence is overestimated due to aggregation bias; the hypothesis that state-regulated prices are more persistent is not confirmed; in turn, the results corroborate the existence of the service-puzzle; and, persistence in the food and beverage group, although low, was relatively higher than expected.

AN ANALYSIS OF THE PREDICTABILITY OF BRAZILIAN INFLATION INDEXES BY INFORMATION THEORY QUANTIFIERS

This research explores the predictability of the Brazilian inflation monthly price indexes time series by information theory quantifiers. Given this, we apply the Bandt and Pompe method to estimate the information theory quantifiers, specifically the Permutation entropy ([Formula: see text]) and the Fisher information measure ([Formula: see text]). Based on the values of both complexity measures, we construct the 2D plane called the Shannon-Fisher causality plane, which allows us to explore the disorder and quantify the randomness inherent to the temporal evolution of the significant Brazilian inflation indexes. Also, we apply [Formula: see text] and [Formula: see text] to rank the Brazilian inflation indexes based on the complexity hierarchy. An overview shows that the Brazilian inflation indexes display lower entropy which implies in higher predictability. The sliding window approach reveals that Brazilian inflation indexes (IPA, IPCA, IGP, IPC, and INPC) present decrease related to efficiency. The only exception is the INCC, which shows an increase in efficiency.

An emigrant economist in the tropics: Nicholas Georgescu-Roegen on Brazilian inflation and development

AbstractNicholas Georgescu-Roegen was a ‘travelling economist’ in a double sense: after emigrating from Romania in the late 1940s, he became involved with the economic problems of the developing world through his engagement in Vanderbilt University’s Graduate Program in Economic Development. One of his missions brought him multiple times to Brazil between the mid-1960s and mid-1970s, leading to an article on the complicated dynamics between inflation and economic growth in developing countries – his sole incursion into the field of monetary economics. In this paper, we will set Georgescu-Roegen’s contribution against the background of the lively debates about inflation taking place in Brazil during the 1960s. Relatedly, we will show how he anticipated important aspects of later arguments about the perverse distributive effects of inflation. Finally, we will discuss why Georgescu-Roegen’s arguments had only limited influence, despite his prestige and connections within the Brazilian community of economists.

Multifractal risk measures by Macroeconophysics perspective: The case of Brazilian inflation dynamics

This paper examines the Brazilian inflation indexes dynamics using the multifractal detrended fluctuations analysis (MF-DFA) and the multifractal detrended cross-correlation analysis (MF-DCCA). We find that the Brazilian inflation indexes (α0 > 0.5) and the pairs of Brazilian Inflation indexes (Δα > 0.5) display a persistent multifractal behaviour, high complexity and skew symmetries. Also, we propose a novel multifractal risk measure (MR) considering the multifractal cross-correlation measure (MRCC). The higher MR and MRCC values indicate the more complex and persistent analyzed phenomenon. In contrast, the lowest MR value indicates less complexity and less persistence. From a Macroeconophysics perspective, our findings clarify that the dynamics of Brazilian inflation indexes and the pairs of Brazilian inflation indexes genuinely have a robust inertial component that makes inflation last for a long time.