Inflation Persistence in Brazil - A Cross Country Comparison

IMF Working Papers, April 4, 2014

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Inflation persistence is defined here as the tendency for price shocks to push the inflation rate away from its steady state—including an inflation target—for a prolonged period.
Persistence matters because it affects the output costs of lowering inflation back to the target, often described as the “sacrifice ratio”.
The paper uses inflation expectations to compare inflation persistence in Brazil with a sample of inflation targeting (IT) countries.
The approach suggests that inflation persistence increased in Brazil through early 2013, in contrast to many of its IT peers, mainly due to “upward” persistence.
The 2013 rate hiking cycle may have contributed to some recent decline in persistence.

Brazil experienced an increase in inflation persistence through early 2013.
The rise in persistence in Brazil is attributed mainly to “upward” persistence (price shocks pushing inflation upward and remaining elevated).
Many inflation targeting peers did not exhibit the same increase in persistence over the same period.
The 2013 rate hiking cycle is identified as a possible factor in a subsequent decline in persistence.

The analysis leverages inflation expectations as the primary lens for comparing persistence across countries.
The study is a cross-country comparison focusing on Brazil and a sample of IT countries.

Subject: Consumer price indexes, Inflation, Inflation persistence, Inflation targeting, Monetary policy, Prices
Keywords: Africa, building inflation credibility, Consumer price indexes, Inflation, inflation expectation, inflation persistence, Inflation persistence, inflation persistence in Brazil, inflation shock, Inflation targeting, monetary policy, Phillips curve, rate of inflation, sample bias, sample period, WP