Understanding inflation in Brazil: lessons from 2011 to 2022

Abstract

Abstract: This study examines the determinants of Brazilian inflation from January 2011 to December 2022 using an autoregressive distributed lag (ARDL) model, complemented by a historical contextualization of the period. The results indicate that inflation expectations are the main determinant of inflation dynamics, with statistically significant effects in both the short and long run. Exchange-rate movements are significant only in the short run, suggesting the presence of transitory pass-through effects. The output gap is also statistically significant, although with a relatively small magnitude, indicating a limited but non-negligible role for demand-side pressures. In contrast, oil prices, agricultural commodity prices, lagged inflation, and policy-related dummy variables do not exhibit statistically significant direct effects. Overall, the findings suggest that external shocks and institutional factors may influence inflation through indirect channels captured in the model, particularly via expectations, exchange-rate dynamics, and short-run adjustment mechanisms.