Inflation and Economic Activity

BRAZIL ECONOMICS - Report 28 Apr 2014 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
The government is in an extremely uncomfortable position in an election year: inflation is threatening to exceed 6.5% and projections for growth in 2014 are below that observed in 2013. The most recent Focus survey published by the Central Bank (last week) indicated a median inflation projection for December 2014 of 6.51%, just above the upper bound of the target interval. More importantly, however, is the fact that the expected inflation rates for all years to 2018 are significantly above the official central target of 4.5% (Graph 1). Expectations are thus becoming progressively unanchored...

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