The impact of food inflation on core inflation in Brazil: a time-varying parameter approach

Por: José Ronaldo Castro Souza jr

Ana C Kreter

Andreza A Palma

Diego Ferreira

This paper investigates the impact of food inflation on core inflation in Brazil using a time-varying parameter vector autregression model with stochastic volatility (TVP-VAR-SV). Employing Bayesian methods, we estimate the model using monthly data from August 1999 to January 2023. Our findings reveal a substantial increase in the volatility of the relationship between food and core inflation during the COVID-19 pandemic. We find a statistically significant pass through from food inflation to core inflation. Food inflation represents a substantial challenge, especially for Central Banks in emerging economies, and these findings carry important implications for monetary policy formulation and implementation.