Why does Brazil's inflation stay so stubbornly high despite even more interest-rate hikes in the horizon? The one-word answer is indexation.
A vestige of the country's hyperinflation period in the 1990s, when annual price gains reached heights above 6,000 percent, indexation was meant to protect Brazilian companies and citizens from depreciating purchasing power by linking costs such as wages to inflation.
Today, inflation is down to 10.67 percent, but indexation means the price of everything from electricity to healthcare is still going up based on an array of formulas taking into account industry costs and one of Brazil's many inflation indexes. It also means a temporary shock could be factored in for years to come. As a result, Barclays says Brazil has the highest inflation persistence of all emerging markets.
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