Good morning! Today we are looking at Brazil’s economy, which registered deflation in September. There’s also the latest from Jair Bolsonaro’s squabbles with his own party—which could lead to an exodus—and we analyze the benefits of being a civil servant in Brazil. (This newsletter is for platinum subscribers only. Become one now!)


Deflation: supermarkets get cheaper as economy sputters

Prices in Brazil saw a decrease of 0.04 percent in September,

representing the biggest deflation for the month since 1998. This drop was largely influenced by a 0.43 percent fall in the cost of food and drink, which decreased for the second month in succession, according to the Consumer Price Index (IPCA).</p> <p><strong>Why it matters.</strong> This deflation is more a result of Brazil&#8217;s sluggish economy than anything else. It now provides the conditions for the Central Bank to promote even more radical cuts to the basic interest rate, in an effort to stimulate investment and consumption. The benchmark rate is currently at an all-time low of 5.5 percent, but analysts now believe it will drop to 4.5 percent by year-end.&nbsp;&nbsp;</p> <div class="flourish-embed" data-src="visualisation/757347"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Breaking it down. </strong>Food items make up one-quarter of family budgets in Brazil. Among the products which saw the most significant price drops on supermarket shelves were tomatoes (-16.17 percent), onions (-9.89 percent), potatoes (-8.42 percent), and fruits (-1.79 percent).</p> <p>September&#8217;s deflation means that the 12-month accumulated inflation rate has dipped under 3 percent for the first time since May 2018 and is getting very close to the bottom limit of Brazil&#8217;s inflation targets for 2019. Accumulated inflation now stands at 2.89 percent, down from 3.43 percent at the end of August. Brazil&#8217;s yearly inflation target is 4.3 percent.</p> <hr class="wp-block-separator"/> <h2>Should he stay or should he go?</h2> <p>According to advisors close to the president, Jair Bolsonaro is set on leaving the Social Liberal Party (PSL) after only nine months of his first term. Mr. Bolsonaro stated on Wednesday that he will remain in the PSL &#8220;for now&#8221; but is mobilizing behind the scenes to jump ship at an opportune moment. The president and his allies intend to create their own party—but that won&#8217;t be an easy feat, and they might not have time to do so before the 2020 municipal elections.</p> <p><strong>Why it matters.</strong> If the president does leave his party, he will test the loyalty of his support base. House party fidelity rules don&#8217;t give representatives much room to leave their parties without losing their terms. But legal questions aside, how many representatives will trade a political group that will have BRL 100 million to fund campaigns in the 2020 municipal elections for a new party with no funds—albeit Mr. Bolsonaro&#8217;s electoral strength?</p> <p><strong>Context.</strong> On Tuesday, a video surfaced on social media of Mr. Bolsonaro speaking to one of his supporters—who presented himself as a pre-candidate for councilor in Recife—and telling the man to &#8220;forget&#8221; the PSL. Referring to party chairman Luciano Bivar, the president said he is &#8220;done for.&#8221; &#8220;Forget that guy, forget the party, OK?&#8221;</p> <p><strong>Promiscuity. </strong>As we mentioned in <a href="https://brazilian.report/newsletters/daily-briefing/2019/10/09/jair-bolsonaro-psl-crumbling-ruling-party/">yesterday&#8217;s Daily Briefing</a>, the PSL is Jair Bolsonaro&#8217;s ninth political party during his public career, which began 30 years ago. It is as of yet unclear which group will be the tenth. The right-wing Patriotas and Podemos parties have shown interest in taking in the president and his supporters, while there is also a hypothesis of holding out for the creation of a new party, the Conservatives party, but this process will take some time.</p> <p><strong>History repeating itself. </strong>Another option would be to join the National Democratic Union (UDN), a &#8220;new&#8221; party which is in the final stages of creation. The UDN has existed before, however, being the opposition party that conspired with military generals in 1964 to depose left-wing president João Goulart, bringing in two decades of dictatorship. The UDN merged into the military regime&#8217;s rubber-stamping political party, the National Renewal Alliance (ARENA).</p> <div class="flourish-embed" data-src="visualisation/754288"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <hr class="wp-block-separator"/> <h2>The perks of being a civil servant in Brazil</h2> <p>In a study on personnel management in Brazil, published yesterday, the World Bank identified that Brazilian public servants earn on average 96 percent more than workers from the private sector. This disparity was the highest among the 53 countries studied by the institution, with the global average seeing civil servants earn just 21 percent more.</p> <p><strong>Why it matters.</strong> The World Bank made a number of recommendations to the country to rein in the salaries of public servants and reduce the number of people being hired. If put in practice, the measures suggested by the financial institution could create savings of BRL 398 billion by 2030.</p> <p><strong>Reform.</strong> The report comes at a time when Brazil is discussing an administrative reform, with the federal government set to submit an overhaul proposal to Congress as soon as the pension reform is fully ratified. Such a proposal will be difficult to get past lawmakers, however, as the civil service lobby is one of the strongest in Brasilia.</p> <p>The World Bank states that the number of public servants has increased over 80 percent in the country over the last 20 years, while the population growth in the same period was only roughly 30 percent. Recent data shows that almost half of federal civil servants earn monthly salaries of above BRL 10,000—some ten times the minimum wage.</p> <p><strong>Measures. </strong>The bank suggested freezing salaries for three years and only offering pay raises in accordance with inflation. The estimated savings with such a move would be BRL 232.6 billion until 2030. Another suggestion, to reduce current starting salaries by 10 percent, would have an impact of BRL 26 billion.</p> <hr class="wp-block-separator"/> <h2>What else you should know</h2> <p><strong>Oil spill.</strong> The Brazilian Environmental Protection Agency (Ibama) says it has found oil stains at the source of the São Francisco River, arguably the most important waterway of Brazil&#8217;s impoverished Northeast region. Ibama inspectors also found two turtles covered in oil: one of them had died, while another was taken for treatment. Oil spills have affected 139 areas along the region&#8217;s coast.</p> <p><strong>Minimum wage. </strong>Congress approved budgetary guidelines for 2020 which foresee a new minimum wage of BRL 1,040 (USD 253). This means that the salary floor for Brazilian workers will not see any real increase next year, only being adjusted for inflation. Regardless, this will be the first time that Brazil&#8217;s minimum wage surpasses the BRL 1,000 mark.</p> <p><strong>Agriculture. </strong>A study from the Agriculture Ministry shows that the productivity of Brazil&#8217;s farming sector has grown an average of 3.36 percent each year since 1975. This is superior to increases in countries such as Argentina, China, Australia, and the U.S. In the last five years, however, growth slowed down, largely due to Brazil&#8217;s recession and climatic factors.</p> <p><strong>Schools.</strong> President Jair Bolsonaro vetoed a bill forcing public elementary schools to provide psychology and social work services to its pupils. When rejecting the project, the head of state said the bill &#8220;creates expenses for the Executive&#8221; without highlighting any means to pay for the service.</p> <p><strong>Michel Temer.</strong> A Rio de Janeiro appeals court has authorized former President Michel Temer to travel to the United Kingdom next week, where he will give a series of lectures at the <a href="https://www.oxford-union.org/">Oxford Union Society</a>. The former president had twice been arrested as part of Operation Car Wash but was released by the Superior Court of Justice (STJ) in May, with the prerequisite that he not be allowed to leave the country.

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BY Euan Marshall

Euan Marshall is a Scottish journalist living in São Paulo. He is co-author of A to Zico: An Alphabet of Brazilian Football.