Distribution and Cost-Push inflation in Brazil under inflation targeting, 1999-2014

In this paper we analyze the evolution of Brazilian inflation under the inflation targeting system from a cost-push perspective. We identify the main features of three quite distinct phases (1999-2003, 2004-2009 and 2010-2014) and explain them in terms of tradable price trends in local currency, changes in the dynamics of monitored prices and behavior of wage inflation.

We conclude that the trend towards continuous nominal exchange rate devaluation after mid-2011, together with the strengthening of the bargaining power of workers and the trend of rising real wages since 2006, means that distributive conflicts in Brazil are getting much more intense. We also suggest that the apparently very irrational recent (early 2015) change in the orientation of economic policy towards contractionary fiscal, incomes and monetary policies in a stagnating economy seems to be ultimately based on the desire to weaken the bargaining power of workers that was much
strengthened during the brief but intense Brazilian “golden age” of 2004-2010.

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