The two Brazilian inflation rates during the pandemic

The Brazilian Central Bank announced further cuts to the country’s benchmark interest rate (Selic) last week, bringing it to the lowest level in history. As the monetary authority’s leading tool to control inflation, it would be expected that low interest rates would be accompanied by equally small inflation. However, this is only half true, as the economic frenzy caused by the Covid-19 pandemic has thrown up some bizarre situations, even in the way inflation is measured.

When the Central Bank cut the Selic rate, the two main inflation indexes in the country were showing very distinct results. The prices of household goods, represented by the IPCA index, have been rising very slowly, even posting a rare spell of deflation in April and May. Meanwhile, the general price index IGP-M — more focused on producers — is high and rising.

Over the past 12 months, the IPCA consumer price index has risen by around 2 percent. The IGP-M, however, is close to 10 percent. The former is measured by the Brazilian Institute of Geography and Statistics (IBGE), while the latter is overseen by think tank Fundação Getúlio Vargas (FGV).

The initial explanation for this discrepancy is in the different sorts of products and prices measured by each. IPCA concerns final prices, whereas IGP-M is broader, accounting for...