Brazil Inflation Driven by Mix of Demand and Supply Factors
In Brazil, inflation has been influenced by a mix of demand and supply factors in recent months. According to a study by UBS Global Wealth Management, supply constraints have become a more significant contributor to price increases, particularly in headline inflation measures. However, core inflation measures show that demand still plays the larger role.
The study analyzed the drivers of inflation using a methodology developed by the Federal Reserve Bank of San Francisco and adapted for Brazil by ASA economist Leonardo Costa. The analysis found that 2.22 percentage points of the 4.64% increase in the benchmark consumer price index (IPCA) over the past year can be attributed to supply factors, while demand accounted for 1.37 percentage points.
The study also highlighted the impact of global events on Brazilian inflation. The war in the Middle East has disrupted oil supplies, contributing to higher prices and a larger share of supply shocks in headline inflation measures. Another major supply shock expected in the near term is El Niño, which economists predict will affect prices in the fourth quarter.