Nov 11, 2011

Brazil: Inflation

In October, the IPCA inflation reached 0.43% and 6.97% over the last 12 months. The inflation rate may be shared in three product categories: (i) supervised prices, which the government sets the rules for their adjustment, (ii) tradable, where prices are heavily influenced by international prices and (iii) non-tradable, composed mainly of services and products that are not subject to international prices. Each of these three components corresponds to approximately one third of IPCA index.

The prices of tradable and supervised goods rose, 5.9% and 6.3% over last 12 months, respectively. The non-tradable prices rose 8.4% over last 12 months, above inflation. The chart below shows the evolution of IPCA index, tradable and non-tradable prices.

The conclusion of these figures is that the inflationary pressure is occurring mainly in the prices of products that do not suffer from international competition. This is due to a favorable situation on the domestic market, with tight labor market pushing wages and strong activity level, though the slowdown in the recent period, which has allowed the increase in consumer prices.

Source: IBGE

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