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Food inflation triggers warning for Bolsonaro
Natália Scalzaretto and Renato Alves . Sep 09, 2020
Photo: Andrzej Rostek/Shutterstock
Food prices must be at the top of a list with the many economic variables a Brazilian president must be attentive to — as they weigh disproportionately on the poor and spark disgruntlement among a significant proportion of the electorate. Jair Bolsonaro knows this — and all the alarm bells have rung in Brasília as official inflation data was released today. The overall rate shows a rate of mere 0.7 percent since the beginning of the year, on pace to finish 2020 far below the government’s 4-percent target.
But Brazilians are beginning to feel the rise in food prices, which fuels pessimism about the economy. A recent survey by pollster Datafolha shows that 70 percent of low-income citizens believe prices will continue to rise in the near future. In reaction, Mr. Bolsonaro asked vendors to prove their patriotism and reduce their margins to “next to zero” in order not to overburden poor consumers.
But why is the specter of inflation haunting Brazil again in the middle of a pandemic?
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<p>For economist Victor Beyruti, an economist at Guide Investimentos, rising inflation is the result of the reopening process of the economy, coupled with monetary and fiscal stimulus. “This price hike tends to be momentary,” he told <strong>The Brazilian Report</strong>. He added that he “still believes in a very benign scenario for price formation in the economy.”</p>
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<h2>The inflation rate is not the same for all Brazilians</h2>
<p>While the data should not be enough to force interest rate increases from the Central Bank, Brazilian households certainly have more than enough reasons for <a href="https://brazilian.report/power/2020/08/23/lula-left-wing-response-bolsonaro-popularity-surge-poor-areas/">concern</a>.</p>
<p>August’s IPCA rate was boosted mainly by two sectors: transports and food/beverages. The latter alone saw a bump of 0.78 percent. Economists point out that with the pandemic, Brazilians are eating more at home, pushing prices up. Tomatoes are now 13 percent more expensive and milk prices have jumped by nearly 5 percent since the start of the pandemic.</p>
<p>“The problem with this data is a product of social factors, as the spike has a bigger impact on low-income populations. Especially since many of the products which suffered a wider variation comprise Brazil’s basic basket of goods,” says Mr. Beyruti.</p>
<p>Food prices have taken a huge toll on lower-income families. IPC-C1 index, which measures inflation on households who earn up to 2.5 times the minimum wage, rose by 0.55 percent in August — and 3.08 percent over the past 12 months, according to think-thank Fundação Getúlio Vargas. </p>
<p>The reason — food prices.</p>
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<h2>The rice crisis</h2>
<p>One of the products which saw the largest increase in prices was rice — a staple of t Brazilian tables. In August alone, a bag of rice was 30 percent more expensive, due to multiple factors such as demand variations and lower-than-usual production.</p>
<p>According to the National Supply Company, rice crops extended over an <a href="https://cast.conab.gov.br/post/2020-08-11_conabcast-11-08/">area</a> 2.1 percent small in the 2020-2021 harvest when compared to the previous season. This trend has also hit the stock market, during a moment in which the country was expected to reach an export record of 1.5 million tons.</p>
<p>On Tuesday, Agriculture Minister Tereza Cristina claimed that there will be no shortage of rice in the local market. “The price is high now, but we will bring it down. By the grace of God, we’ll have a super harvest next year,” she promised. Still, many supermarkets have imposed quotas for consumers — a typical move when vendors anticipate shortages.</p>
<p>The National Supply Company expects a 7.2-percent growth in the rice production, to a total of 12 million tons for the 2020-2021 harvest. Meanwhile, the government is analyzing a pledge from the major players in the supply chain to scrap import taxes on rice from members of <a href="https://brazilian.report/latin-america/2020/04/25/argentina-exits-mercosur-negotiations-upending-trade-deals/">Mercosur</a> — the South American trade bloc. </p>
<p>The move could increase local supply, but is unlikely to offset one of the key factors for the current situation: China’s appetite for Brazilian commodities. The Asian superpower is benefiting from the Brazilian Real’s 40-percent devaluation this year to beef up its food stocks, depleted by the Covid-19 crisis and its trade war with the U.S. </p>
<h2>The ghost of hyperinflation continues to haunt Brazil</h2>
<p>Jair Bolsonaro’s pledges to supermarket owners to reduce their margins and freeze prices might have struck too close to home for Brazilians over 40 — who lived through the hyperinflation crisis of the 1980s and early 1990s. In those years, inflation rates reached the astronomical heights of <em>80 percent a month</em> — with supermarket products changing prices multiple times a day. Between 1986 and 1993, <a href="https://brazilian.report/society/2019/05/03/brazilian-economy-crises-history/">Brazil changed its currency five times</a>. That remains one of the reasons Brazilians have the habit of shopping for their groceries monthly, and why the country cares so little for coins, which were literally worthless.</p>
<p>Government economic plans of the time usually involved freezing prices — and then-President José Sarney asked citizens to help authorities monitor store behavior, with each Brazilian becoming a “price auditor.”</p>
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<p>One of the worst moments of this crisis, however, would come on March 16, 1990 during the presidency of Fernando Collor de Mello, when the government launched an ill-fated inflation-stabilization control program that involved freezing 80 percent of all private financial assets — including people’s savings accounts — for 18 months. An estimated USD 100 billion was confiscated, representing 30 percent of the Brazilian GDP at the time.</p>
<p>Millions of Brazilians became penniless overnight. As expected, droves of account owners flocked to their banks to try and withdraw all the money they could, while companies simply couldn’t afford salaries anymore. In some regions, enraged Brazilians drove their cars into a branch after being told they couldn’t touch their own savings.</p>
<p>Despite the radical plan, inflation rates would get back to the double digits in just three months. It would only be with the <a href="https://brazilian.report/business/2019/07/01/brazil-longest-lasting-currency-real/">creation of the Brazilian Real</a> that the country would finally tame inflation and achieve a measure of economic stability.
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