Brazil's Scars Linger Even With Inflation Healing Nicely

Long gone are the hyperinflation days in Brazil when supermarket workers patrolled the aisles with labeling guns, marking up prices more than once a day. But Brazilians can’t seem to forget. It’s sort of a collective trauma, and there has been only one — brief — occasion over the past 20 years when more people expected inflation to slow than to accelerate.

That may help explain why after the most recent inflation spike, brought on by unwinding of government controls and by food price shocks, still more than half of Brazilians say faster inflation remains in store. It’s as though they’re ignoring the fact that the inflation rate has been more than halved from double digits in just over a year. (Or they're confusing deflation, when prices fall, with disinflation, when prices rise less.)

Yet, as of Wednesday, Brazil's inflation rate has dropped below the government’s target for the first time in nearly seven years. The slump is allowing the central bank to aggressively lower interest rates. What’s more, Brazil suddenly finds itself home to the slowest inflation among Latin America’s top four economies.