Up, Up and Away: Inflationary Impulses Ahead

BRAZIL ECONOMICS - Report 01 Jul 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

Recent inflation dynamics are showing unfavorable signs that require attention. IPCA-15 underlying measures accelerated, and the pressure is expected to continue, reflecting an economic activity close to or above full employment. Simultaneously, the depreciation of the real causes an additional shock to prices, affecting especially categories that have hitherto helped in the disinflation process, such as industrial goods.

Our calculations indicate that a 10% depreciation in the exchange rate would push IPCA up 0.93 percentage points and industrial goods prices by 1.2 percentage points. Given this scenario, our inflation expectation for 2024 stands at 4.3%.

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