All eggs in one basket

BRAZIL ECONOMICS - Report 12 May 2025 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

The appreciation of the Brazilian real in 2025 is good news for inflation control. However, the total impact of this appreciation on prices seems to depend on the real’s dynamics against currencies other than the dollar. Although most Brazilian imports are denominated in U.S. dollars, export pricing by the country of origin (our imports) may be anchored in the local currency.

When estimating our exchange rate pass-through models based on different currency baskets, we found a slightly larger effect with the basket weighted by each country’s share in Brazilian imports. It is worth noting, however, that while the real has appreciated 7% against the dollar since the start of the year, the appreciation against the broader currency basket was only 3.4%. Thus, estimates of the disinflationary effects of currency appreciation based solely on the dollar are likely overstated; the total effect may be only half of what is estimated when looking at the dollar exchange rate alone.

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