Lower commodity prices deteriorate Brazil's terms of trade

The TOT is falling due to the ratio of Brazil's export to import prices is falling. While the prices of both are falling, the bulk of the variation in the TOT was caused by the sharper decline in export prices - particularly since peaking in 2011. The chart shows that Brazil's export prices have followed global commodity prices quite closely. 

"In the recent cycle, the S&P GSCI commodity spot price index has declined by 46% since peaking in May 2011. Export prices have declined by over 32% during the same period, resulting in a 22% decline in the TOT", notes Societe Generale. 

In fact, a close look at the TOT by sector shows that most of the deterioration has taken place in commodity-related sectors (such as metals and oil).