The scale of the economic impact of the floods that have affected much of the southern state of Rio Grande do Sul will depend on how long it takes for the waters to recede and for reconstruction efforts to get underway. Given the region’s importance to Brazilian agriculture, the floods are likely to push food inflation up, although we doubt this will affect the outlook for monetary policy. Perhaps the more important point is that climate change is likely to make severe weather events such as floods and droughts more frequent – and the effects on Brazil's economy are likely to become larger.
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