Economy: How does the dollar impact inflation in Brazil? – Accounting Journal

Economy: How does the dollar impact inflation in Brazil? – Accounting Journal
Economy: How does the dollar impact inflation in Brazil? – Accounting Journal

The IBGE disclosed that inflation rose 0.62% in December last year, leading the broad consumer price index (IPCA) to an accumulated increase of 5.79% last year.

This was the second consecutive year of closing above the target established by the central bank, within this advance, the main contributions came from products that suffer above all, with the variation of the dollar.

Find out now how this rise in the US currency impacts price dynamics in Brazil.

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Influence of the dollar on prices in Brazil

People often talk about the exchange rate only when they are going to travel, only at these times do many Brazilians try to find out the value of the dollar in real.

However, several products purchased here in Brazil are imported, that is, their price is defined in dollars, and then translated into real. Therefore, there is a clear impact on the value of household appliances, clothing that is produced externally.

But we should also pay attention to the indirect effects, often the parts or inputs used for the production of materials and products here in Brazil are imported, with that, we have an increase abroad that ends up contaminating part of the cost of these goods in Brazil.

Some goods that suffered a lot last year with very high inflation, which shows a clear effect of the exchange rate, were pharmaceuticals and all parts of home appliances.

But we can mention that especially cars, which have a series of imported parts, which are only assembled here in Brazil, another good that has a very big effect of the dollar is fuel.

The increase in fuel prices can be explained by the dollar, because the price is compared with the foreign market and expressed in reais, that is, as much as oil and all its derivatives rise as the dollar devalues ​​and impacts what the value of the fuel.

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Dollar X Inflation

The central bank has to pursue inflation, the inflation target that is normally established two years in advance, based on the monetary policy instrument: the SELIC interest rate, which is the basic interest rate of the economy.

The SELIC indirectly interferes with the exchange rate, because every time the interest rate is higher, it becomes more expensive for consumers in Brazil.

However, for investors it is more interesting to invest, not only Brazilians, but also for foreign investors, it is more attractive to bring money to Brazil and earn on top of higher interest rates.

In short, the central bank raises the interest rate to contain inflation, but it ends up having a secondary effect, as it ends up attracting foreign money to Brazil.

With a greater flow of dollars circulating in Brazil, the real tends to appreciate, so the dollar becomes cheaper with this dynamic, and the central bank can also intervene directly in the exchange market.

The central bank accumulated an international reserve of more than 300 billion dollars in the last two years, with that it can occasionally enter the exchange market, when it has more appreciation, to sell the dollar and try to balance this volatility.

This is a global movement, because the United States has influence and dictates how the mood of markets around the world will be, not only in emerging countries such as Brazil and Mexico, but also in countries in Europe, Canada, Australia and everyone ends up being influenced by the United States.

The article is in Portuguese

Tags: Economy dollar impact inflation Brazil Accounting Journal

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