High inflation returns to Brazil: “Different prices every week”


For Vania Barbosa, it has become increasingly difficult to not be able to afford basic models. This 40-year-old single mother from the suburbs of Brasilia used to buy one kilogram of ground beef or knuckles a week, but now only buys cheaper beef once a month.

“Every week you go to the grocery store and there are different prices,” the restaurant staff said. “Sometimes I have to take out a piece of fruit, a mango, or a box of soap, and I won’t wash my clothes until next week.”

After soaring costs from gasoline to meat and pushing the inflation rate to double digits for the first time in more than five years, her hardship reflects the uncomfortable pockets of many people in Latin America, the most populous country.

As President Jair Bolsonaro was preparing for next year’s re-election campaign, he faced dissatisfaction with the standard of living, insisting that this is a problem all over the world.

The rebound in commodities such as crude oil and food, as well as supply chain bottlenecks following the disruption of the coronavirus, contributed to this global phenomenon.

“But another part of the reason is domestic,” said Caio Megale, chief economist at XP, an investment brokerage firm. “Our exchange rate has depreciated more than [many] Other currencies have caused inflation to strike with greater force. “

Since the beginning of 2020, the real exchange rate against the U.S. dollar has fallen by a quarter and has fallen by 5% so far this year.

The increase in consumer prices in Brazil in October pushed inflation to an annual average of 10.67%, higher than expected, and the largest increase in the month since 2002. Among the G20 countries, it ranks only below Turkey (20%) and Argentina (52 points), which has been hit hard for a long time, according to OECD data.

In the past 12 months, Brazilian shoppers have witnessed Product rises sharply From refined sugar (48%) and cooking gas (38%) to air tickets (50%).

At the same time, the The worst drought in nearly a century It has cracked down on hydroelectric power generation and forced utility companies to open higher-cost thermal power plants, leading to higher electricity bills.

The effect is felt by more people People with lower incomes, The researchers say there are already Increased hunger Since the beginning of the epidemic.

Wealthy residents in places like Sao Paulo have also noticed indirect effects, including longer waiting times for Uber.

Although with the lifting of Covid-19 restrictions, traffic has returned to the country’s largest city, drivers said that although the platform has recently increased take-home fares, the increase in fuel pumps has reduced the cost of certain rides. Attractive.

“Sometimes it’s not worth picking up customers. You’re losing money — you’re paying to go to work,” said Sergio Pereira, a driver who logged into the app over the weekend.

As Bolsonaro lags behind the former left-wing President Luiz Inácio Lula da Silva in the polls, the latter is expected to challenge his presidency in the October 2022 elections. The government intends to be the most Poor citizens provide cash transfer programs.

But some observers worry that these plans may eventually increase inflation, even if the central bank raises interest rates in response to rising prices dragging on growth.

To pay Extended benefit plan, The government hopes to change the constitutional spending ceiling that limits budget growth and is regarded by investors as the pillar of Brazil’s economic credibility. The draft legislation before Congress will also delay the payment of certain judicial debts.

Critics view the move as a worrying sign that fiscal integrity may be abandoned. They believe that this may lead to a vicious circle, putting more pressure on the currency, and then pushing up the value of imported goods and commodities denominated in dollars.

Former central bank governor Arminio Fraga said that although the additional funds released “may not be the end of the world”, the plan may lead investors to believe that “the floodgates have been opened and the government may default.” “A legal obligation”.

He added: “It allows bad scenes to spread into the picture.” “I think the kind of inflation we had in the 80s and even the 70s would be surprising. But can we completely eliminate it? I’m afraid not.”

Currently, the country is still a long way from past stratospheric hyperinflation, which was controlled in the mid-1990s through a macroeconomic stabilization program that introduced a new currency.

However, some economists are now talking about the possibility of “fiscal dominance.” This means that monetary policy has become less effective in fighting inflation, or even counterproductive, because higher borrowing costs increase the burden of repaying government debt and increase doubts about public finances.

Brazilian Central bank It has always been one of the most hawkish countries facing inflation. It raised the benchmark Selic interest rate six times this year, from a historical low of 2% to 7.75%.

However, the dampening effect of interest rate hikes on economic activity has led to a downward revision of the GDP forecast. The possibility of almost zero growth in 2022 is exacerbating the specter of stagflation.

Despite the bleak outlook, the currency has regained some of its lost ground this month. It is hoped that starting from May, a major source of price pressure will ease, when the emergency electricity price will expire.

XP’s Megale said: “As the central bank takes a tougher stance and the global economy may slow down, inflation will fall.”

“But the key point is still the public account. If we cannot balance, inflationary pressures will become more and more persistent in the economy.”

Economic adviser Zeina Latif believes that Brazilians accustomed to moderate price increases will show dissatisfaction in the ballot box. She said that Bolsonaro “smashed up what he shouldn’t have.”

Additional report by Carolina Ingizza in Sao Paulo



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