Inflation: Little Room to Absorb Shocks

BRAZIL ECONOMICS - Report 17 Mar 2014 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
Inflation had been decelerating, declining from 6.7% in June 2013 to 5.6% in January 2014, but the 0.69% increase of the IPCA in February ended this more favorable period, putting the rate over the past 12 months at 5.7%. The tendency from now on is for oscillation around the upper bound of the target interval, with a high probability of exceeding this level in the third quarter. Since 2005 the Central Bank has been pursuing an “official inflation target” of 4.5%, with an interval of plus or minus two percentage points. The only reason for such an ample interval was the history of “shocks” ...

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