After the high level of rice, understand why the economic crisis will leave prices stable economy

In the original scene, Nazaré was carrying a stolen baby, whose family was behind her.

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The joke shows how valuable an item in the Brazilian basic basket has become: with an increase of 3.98% in August, rice accumulates an increase of 19.25% in the year.

In the case of beans, according to type and region, the accumulated increase exceeds 30%, according to the Extended Consumer Price Index (IPCA) for August. Milk (23%) and eggs (7.1%) complete the list of the biggest increases of the year.

Inflation on the Brazilian plate raised the question: are we about to experience a succession of high prices, at a time when the basic interest rate (Selic), used to control inflation, is at its lowest historical level? ?

The answer is no. Recent food inflation is punctual and is not expected to spread to other sectors of the economy, according to economists heard by BBC News Brazil. But the reason behind this is not good news.

“There is no demand to support a generalized price increase,” says André Braz, coordinator of the Consumer Price Index (CPI) of the Brazilian Institute of Economics (IBRE), linked to the Getúlio Vargas Foundation (FGV)

“In Brazil, consumption capacity is hampered by the high indebtedness of families”, completes the economist Ladislau Dowbor, a postgraduate professor at the Pontificia Universidad Católica de São Paulo (PUC-SP).

“With the exception of food, we are in deflation, people have stopped consuming. And the dynamic labor market will take time to return,” says María Andreia Parente Lameiras, a researcher at the Institute for Applied Economic Research (Ipea).

According to André Braz, one of the factors behind the recent increase in food prices is the increase in domestic demand.

“The Brazilian middle class created a certain buffer, because they stopped spending on leisure and travel, for example, and with the pandemic they spent more time at home, which led them to cook at home,” he says.

At the same time, the poorest had an emergency aid of R $ 600 granted by the federal government and almost a quarter of the income of the less favored classes goes to food. There was a greater demand for food, at a time when the exchange rate soared, reflecting the very high public deficit, says Braz.

With this, many producers preferred to export part of the production, since there is a high demand for food worldwide, especially from China, with the purchase of grains and animal protein ”, he says.

Thus, in the equation between high demand and low supply, the price goes up.

This pressure on food prices is expected to continue through the end of the year, but to a lesser extent, according to economists.

“The middle class mattress is thinning over time, while emergency aid, whose value has already dropped by half – R $ 300 – will only be granted until December,” says Braz.

“You should see a more significant drop in the price of rice early next year, with a new harvest,” says Maria Andrea.

Impact on the poorest

According to the Ipea researcher, the recent increase in prices corrodes the income of the poorest.

In the last 12 months ended in August, inflation in the lowest income segments rose 3.2%, reaching a rate more than double that of the inflation of families with greater purchasing power (1.5%), according to Ipea.

“In August, for example, families with higher incomes were relieved by the fall in the prices of school tuition, something that does not affect the lives of the poorest families,” he says.

The IPEA indicator indicates that segments such as clothing and bed, table and bathroom have registered a sharp drop in prices in recent months, a reflection of the pandemic.

“But even if the entrepreneurs in these sectors transfer some increase until the end of the year, it will not be anything significant, simply because there is no demand,” says María Andrea.

“There is no factor that justifies a general inflationary pressure in Brazil.”

With 13 million unemployed, 6 million “discouraged” (who stopped looking for work) and 40 million surviving in the informal sector, Brazil is far from seeing a recovery in the economy, says Ladislau Dowbor.

“The great mass of the population is fragile and in debt,” says the professor from PUC-SP. According to him, part of the proceeds from emergency aid supported the financial system, with the payment of overdraft and interest on the card.

“The country has 61 million people who are ‘negative’, that is, with a dirty name, because they do not understand that interest is charged monthly, not annually, as in the rest of the world,” he says. As an example, Dowbor cites the interest rate on revolving credit, which is 255% per year in Brazil, compared to 11% in Canada, for example. “This completely locks in purchasing power,” he says.

On the trader side, there are no positive expectations for the main date of the year, Christmas.

“About 9 million people had their employment contract suspended in Brazil during the pandemic,” says Fábio Pina, economic advisor to the Federation of Trade in Goods, Services and Tourism of the State of São Paulo (FecomercioSP).

“Some of these workers are not even going to work again, because many companies such as restaurants, bars, cinemas, small events and clothing stores have closed their doors,” he says. With fewer people receiving the thirteenth salary, less money will be injected into the economy in November and December.

“We will certainly have a worse Christmas than last year,” he says.

By 2021, economists believe that Brazil will stay close to the 3% inflation target, without exceeding it.

The economic recovery movement will be very gradual, far from the “Nike V”, a figure used by the Minister of Economy, Paulo Guedes, to indicate an increase a little slower than the fall.

“The resumption of the economy will depend fundamentally on fiscal balance, to regain investor confidence,” says Fábio Pina.

In André Braz’s opinion, government officials could start by cutting their own salaries, to show how much they are committed to reducing expenses and balancing public accounts.

“But rarely do the government’s economic and political teams agree.”

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