Interest Rates and Inflation

The main objective of this study is to analyse the correlation between the Selic base interest rate and inflation as measured by the Broad National Consumer Price Index (IPCA) for the monthly period from 1999 to 2015. The topic is justified due to its importance and low sensitivity to interest rates. To answer the research question a literature review on inflation was conducted since this topic is even more widely discussed in Brazil as a result of its economic history marked not only by economic instability but also by failed plans to combat the continuous and widespread increase in prices. The Pearson and Spearman correlation index calculation methodology was used. As a result it was observed that the Selic rate and inflation have a correlation classified as weak. However even for the Pearson index although significant it was not as expected as the correlation shows a very delayed effect of the Selic rate. For the Spearman index hypothesis H0 (no association between the variables) was accepted. However it was found that the data were not statistically significant.