What inflation is, explained simply

In a nutshell

Inflation is when prices go up in general, not just for one product. With inflation, the same money buys fewer things than before. This is called losing purchasing power. Understanding inflation helps you plan your month and choose where to keep your money.

How inflation is measured

In Brazil, the official inflation index is the IPCA, measured by IBGE, the national statistics institute. Every month, IBGE tracks the prices of many items families buy: food, rent, electricity, transportation, medicine and more. Then it calculates how much more expensive that whole set became.

The IPCA is an average. Your household's inflation can be higher or lower, depending on what you buy. If your family spends a lot on food and food went up more than everything else, you feel it more.

Example

Dona Lúcia spends R$ 500 a month on groceries. Suppose, just as an example, inflation of 5% a year, and that her items rise at that pace.

• Increase in one year: R$ 500 × 5% = R$ 25.
• Cost of the groceries after one year: R$ 500 + R$ 25 = R$ 525.
• In the second year, the 5% applies to R$ 525: R$ 525 × 5% = R$ 26.25.
• Cost after two years: R$ 525 + R$ 26.25 = R$ 551.25.

Notice that the second increase was bigger than the first. One year's inflation builds on top of the previous year's.

Now see what happens to saved money. Dona Lúcia left R$ 1,000 in an investment that earned, hypothetically, 3% in the year. She ended up with R$ 1,000 × 1.03 = R$ 1,030. But what used to cost R$ 1,000 now costs R$ 1,000 × 1.05 = R$ 1,050. She has more reais, but she can buy less: she is short R$ 1,050 − R$ 1,030 = R$ 20. An investment that earns less than inflation really loses value.

Why prices go up

Prices can rise for many reasons. Sometimes people want to buy more than there is to sell. Sometimes producing things gets more expensive, because of fuel, energy or a bad harvest. To hold inflation back, Brazil's Central Bank usually adjusts the Selic, the country's basic interest rate. The goal is to keep the IPCA close to the target set by Brazil's National Monetary Council (CMN). Since 2025, the target has been 3% a year, with a tolerance of 1.5 percentage points either way, checked every month against inflation over the previous 12 months.

Step by step

1. Compare what you spend today with what you spent a year ago in the same categories, such as groceries, electricity and transportation.
2. In Meu Gasto, look at the reports by category to find where prices weighed most on your household.
3. Update your monthly plan with the new amounts, not last year's.
4. Compare prices and switch brands when you can. Small swaps at the supermarket add up over the year.
5. For saved money, compare the return with inflation. What matters is how much is left above it.
6. To adjust an old amount for inflation, use the Calculadora do Cidadão, a free calculator from Brazil's Central Bank.

Common mistakes

• Thinking low inflation means prices are falling. Low inflation means prices rise slowly. Prices falling is something else, called deflation.
• Keeping the same budget for years. Prices change. Review your plan at least once a year, or whenever money feels tight.
• Looking only at the return in reais. If the investment earned less than inflation, you lost purchasing power. Always compare the two.
• Leaving money sitting without earning anything. Idle money loses value to inflation. Even your emergency fund can sit in something simple that earns.
• Thinking the IPCA equals your household's inflation. It is a national average. Your own spending shows your real inflation.