Devaluation of the Real Increases Inflationary Pressure in Brazil

With the dollar at around R$$ 6, concerns about inflation in Brazil are growing, especially due to the strong pass-through of the exchange rate devaluation to consumer prices. The Brazilian economy, operating above capacity, and fiscal and inflationary uncertainties worsen the scenario. The Central Bank highlighted that the exchange rate pass-through is more intense when demand is high and expectations are unanchored. Economists point out that the current exchange rate pass-through varies between 8% and 10%, mainly affecting food and industrial goods.

The speed of this pass-through has also increased, with faster impacts on consumer prices. Projections indicate that inflation will continue to be under pressure in 2025, reflecting the recent devaluation of the real. Economist Andréa Ângelo, from Warren Investimentos, notes that the time lag between currency devaluation and consumer prices, which used to last up to four quarters, now occurs in just one quarter for items such as furniture and electronics.

In addition, inflation projected for 2024 and 2025 should be significantly impacted, with the IPCA estimated at 4.9% for 2024 and 5.15% for the end of 2025. João Fernandes, from Quantitas, reinforces that inflation will be driven mainly by food and goods, reflecting the influence of the exchange rate.

Source: CNN Brasil