Levels of Inflation in Brazil - Research Paper Example

Inflation in Brazil Inflation in Brazil The economic conditions in the South American countries are not as good as compared to other developed countries. However, the economy of Brazil has been growing at a rapid pace and it is becoming one of the well developed economies in the world. Brazil is the largest economy in South America and it has been growing at phenomenal rates in the recent past. With the rapid economic expansion, certain challenges are bound to be faced and one of such challenges is the high rate of inflation.

The rate of inflation in Brazil is higher as compared to other developed economies. The most recently reported rate of inflation in Brazil was 5.1 percent in April 2012. The most recently reported rates of inflation in the US, UK and China were 2.3%, 3.47%, and 3.45% respectively. All these rates of inflation are lower than that of Brazil. Inflation refers to the rise in prices when compared to a specified level of purchasing power. High inflation is one of the costs that an economy has to pay for expansion.

In order for an economy to grow, there is bound to be a rise in the rate of inflation and the same is the case with the economy of Brazil. The growth in the economy in the recent past has kept the rate of inflation high. There are a number of factors that cause a rise in inflation such as; increase in monetary supply, increase in overall demand, and change in interest rates. All these factors are bound to be found in a growing economy. Historical Inflation Rates Following is the trend of the rate of the inflation in Brazil in the past year: Figure 1: Trend of inflation in the past year (Source: Global-rates.com) It can be seen from the graph that the rate of inflation reached its peak in the month of September last year and it is following a downward trend since then.

The most recent rate of inflation is also a part of the downward trend and it can be expected that the rate of inflation would fall even further in the future. Following is the table indicating the yearly inflation rates: Table 1: Yearly Inflation Rates Year Rate of Inflation 2011 6.51% 2010 5.26% 2009 5.53% 2008 5.04% 2007 2.99% 2006 4.63% 2005 8.07% 2004 5.26% The historical data of the inflation rates in Brazil suggests that the inflation rates in the Brazilian economy have not followed a constant trend and there have been numerous fluctuations in the inflation rates.

In the set of data presented in the table, it highest rate of inflation can be observed in the year 2005 which is 8.07% and in the immediately next year, the inflation rate fell to 4.63% which is a significant fall. The rate of inflation has showed a near constant behavior since the year 2008 with a slight increase in the year 2011. Conclusion It can be concluded that the rate of inflation prevailing in the Brazilian economy is high as compared to other developed economies in the world. However, this high rate of inflation is due to the rapid expansion of the Brazilian economy.

From the historical analysis, it can be concluded that the rate of inflation in Brazil has showed a fluctuating behavior. From last year’s trend, it can be said that the inflation rate is following a downward trend. References Global-rates.com. (2012). Inflation Brazil – Consumer Price Index (CPI). Retrieved May 18, 2012, from http://www.global-rates.com/economic-indicators/inflation/consumer-prices/cpi/brazil.aspx Reuters.com. (2012). Factbox: Key facts about Brazil’s economy. Retrieved May 18, 2012, from http://www.reuters.com/article/2010/11/19/us-brazil-summit-economy-idUSTRE6AI3ZZ20101119