Inflation Indexation in Brazilian Contracts: IPCA, IGP-M and Annual Adjustments

Inflation clauses are part of almost every long-term contract in Brazil: rent, supply agreements, service contracts, public concessions. A history of high inflation made indexation a habit, and the law turned it into a set of rules. For a foreign group, three points matter: contracts are generally paid in reais, price indexation is allowed only once a year, and the choice of index can change the economics of a contract. This guide explains the rules and the main indices.

The rules: reais, and adjustments once a year

Payments in reais, with exceptions

Obligations payable in Brazil must be paid in reais at their nominal value. Payment in, or linked to, foreign currency is void, except where the law or the Central Bank allows it (Law 10,192/2001, article 1). Law 14,286/2021, Brazil’s foreign exchange framework, lists the cases where foreign currency is allowed, including:

• foreign trade in goods and services, its financing and guarantees;
• obligations where the creditor or the debtor is a non-resident, including loans and leasing, except leases of property in Brazil;
• certain leasing between residents funded abroad, indirect exports and contracts of exporters with infrastructure concessionaires;
• other situations regulated by the National Monetary Council to reduce currency risk.

Between two Brazilian companies, a domestic contract must therefore normally be in reais. Commercial rent can never be set in foreign currency or linked to the exchange rate (see leasing an office in Brazil).

Annual indexation

Adjustment by general or sector price indices, or by input costs, is allowed only in contracts with a term of one year or more, and a clause with a shorter adjustment period is void (Law 10,192/2001, article 2). Arrangements that produce the same effect as a more frequent adjustment are also void. Financial market operations have their own rules. Public contracts follow the same annual rule, counted from the date of the bid.

The main indices

Other indices appear in specific contracts: the INCC for construction, the IGP-DI, sector indices and input cost formulas for supply contracts.

IPCA: the official reference

The IPCA is the index used for Brazil’s inflation target. Since 2025, the National Monetary Council has set a continuous target of 3% with a tolerance of 1.5 percentage points. In September 2026, 12-month IPCA inflation was 4.58%, slightly above the upper limit. The IPCA is also the default index for monetary correction when a contract is silent (see below).

IGP-M: volatile because of wholesale prices

The IGP-M has a heavy weight on wholesale prices, including commodities and goods affected by the exchange rate. It can therefore diverge sharply from consumer inflation. In 2020 and 2021, a weak real and rising commodity prices pushed 12-month IGP-M above 30%, far above the IPCA, and many tenants and suppliers renegotiated contracts indexed to it. In other periods the IGP-M has run below the IPCA, as it did in the 12 months to September 2026.

When the contract says nothing

Since Law 14,905/2024 changed the Civil Code, if a contract does not specify a monetary correction index, the IPCA applies to late payments, and if it does not specify interest, the legal rate is the Selic rate minus the IPCA, floored at zero. The Selic, the Central Bank’s policy rate, stood at 13.75% a year in October 2026. Before this change, courts used different criteria, so the new rule gives more predictability, but an explicit clause is still better.

Interest-rate benchmarks

Financial contracts, intercompany loans in reais and many supplier financing arrangements are linked to interest rates rather than inflation:

• Selic: the policy rate set by the Central Bank’s Monetary Policy Committee (Copom).
• CDI: the interbank deposit rate, which tracks the Selic closely and is the usual benchmark for bank loans and investments.
• TR: a reference rate used mainly in savings accounts, FGTS balances and some real estate financing.

Practical points for foreign groups

1. Choose the index deliberately. IPCA is more predictable and closer to the costs of a services business; IGP-M can swing with the exchange rate and commodities.
2. Match revenue and costs. If customer contracts are adjusted by IPCA and the office lease by IGP-M, the subsidiary carries index risk.
3. Fix the base date and the period: the anniversary of the contract and a twelve-month window, to avoid disputes and invalid clauses.
4. Plan for negative inflation: state whether the price can fall when the index is negative.
5. Budget in reais and in the group currency: indexation protects against inflation, not against exchange rate movements, which the subsidiary or the group must manage separately (see cash flow management for Brazilian subsidiaries).

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil. Our finance team builds budgets and forecasts that reflect indexation clauses and their risk, tracks the annual adjustments of leases and contracts, and reports the effect to headquarters. Explore our CFO as a Service or talk to our consultants.