Decomposing brazilian inflation into supply and demand driven fluctuations
DOI:
https://doi.org/10.1590/1980-53575638lcmrKeywords:
Inflation decomposition, Demand-driven inflation, Supply-driven inflation, New Keynesian Phillips curve, Brazilian economic crisis, Post-pandemic inflationAbstract
Are inflationary cycles in Brazil supply- or demand-driven? Identifying each inflation component and understanding its properties is central to understanding economic fluctuations and guiding monetary policy. We construct a new monthly dataset that maps disaggregated IPCA inflation categories to corresponding quantity indicators, which we use to decompose inflation into demand- and supply-driven components based on a bivariate VAR for each category. We find that demand-driven inflation is two to three times more strongly related to the output gap than headline inflation and explains inflation inertia. Supply-driven inflation is largely transitory and weakly negatively associated with the output gap. The decomposition points to a prominent role for supply-driven forces in the 2015 inflationary episode and almost absent demand pressures in the 2016–17 disinflation. Demand pressures emerged early in the post-pandemic surge, with supply pressures intensifying from 2021 onward.
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Copyright (c) 2026 Leonardo França Costa, Marcel Bertini Ribeiro
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Atualizado em 14/08/2025