Inflation in Portugal Through the Lens of the Fair Model

This study delves into the dynamics of inflation in Portugal, employing a cost-push model as the analytical framework. The model is estimated using data from 2000Q2 to 2020Q1, a period predating the onset of the COVID-19 pandemic and the surge in inflation. We then produce forecasts spanning from 2020Q2 to 2023Q2. The forecasts hint strongly at a structural break during this latter period, implying that the model offers insufficient representation of inflation dynamics in Portugal. We conclude with a discussion of the model's strengths and limitations in understanding inflation dynamics, shedding light on critical aspects that impact its explanatory power.