Much Ado About Nothing

BRAZIL ECONOMICS - Report 27 Jun 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Decree 12.079 has been published, establishing the legal framework for changing the methodology of inflation target measurement: instead of verifying whether the target has been met (i.e., whether the observed inflation was within the tolerance range defined by the National Monetary Council, CMN) in December of a given year, the measurement will now be continuous. As we will argue, this should not change the modus operandi of the Central Bank (BCB), meaning we do not expect it to impact monetary policy decisions, inflation expectations, or the path for the Selic rate.

Specifically, if inflation – according to the metric to be determined by the CMN – exceeds (or falls below) the maximum (or minimum) tolerance limit for six consecutive months, it will be considered a failure to meet the target; otherwise, it will not.

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