Inflation: No help from fiscal policy

BRAZIL ECONOMICS - Report 05 Aug 2013 by Marcelo Gazzano, Cristina Pinotti and Affonso Pastore
For the past few weeks the official pronouncements have been celebrating the transitory fall of inflation caused by the reduction of food prices as a whole. But the end of this period is approaching, and from now on the dominant factor will be the effect of the weaker exchange rate on inflation. Last week the real passed the R$2.30/US$ mark (Graph 1) before the Central Bank intervened again by selling foreign exchange swaps. With these transactions last week, the total sold since June 2013 has reached close to US$ 40 billion (Graph 2). In our estimate, it takes about eight months for the ef...

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