We estimate that all of the jump in inflation in Brazil over the past year can be explained by increases in government-regulated prices and a drought-related rise in food costs. Both of these effects should prove temporary, meaning that the spike in inflation should start to unwind by the end of the year. But the good news ends there. Even allowing for the unwinding of the temporary factors that have pushed up prices this year, inflation is likely remain above the central bank’s target for much of 2016.
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