BoF Explains: Why do prices keep rising?

Projections for inflation this year in Brazil have been increasing in recent months and the country is increasingly moving away from the target established for 2021. The most recent Focus Bulletin estimates inflation of 6.56% for this year, the center defined by the government is of 3.75%. Market expectations have been growing for 16 weeks.

For all Brazilians who go to the market, need gasoline or pay for electricity, the trend indicated by the data was already obvious. The streak of rising prices hits basic items like energy, fuel and food.

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Much of this scenario is directly impacted by government actions. The crisis was exacerbated by the pandemic, but reality shows that the country was not prepared and did not protect its economy to face the health emergency in a more sustainable way.

This week, the series BoF explains talks about the direct relationship between the population’s pocket and the actions of Jair Bolsonaro’s government.

in addition to the economiques related to commodity prices, devaluation of the real and repressed demand, there are more practical aspects to this formula.

The basic

To understand the rise in prices in Brazil, it is not possible to exclude the fact that inflation has hit sectors that are essential for those who produce and those who consume. As a result, the upward variation is recorded in the indices for the entire chain.

The more expensive production cost reaches the shelves and the high dollar makes it more advantageous to sell the products abroad, which reduces the offer in Brazil. Thus, it is possible to conclude that measures are needed for the entire chain.

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In Brazil, which has electricity, fuel and food at an ever-increasing price, the income of women and men workers is flat. At the same time, the expenses of factories, commerce, construction, food production and the entire country are on the rise.

the fuel

Only in 2021, the readjustments of petroleum derivatives in Brazil have already led to gasoline increase by more than 40%, diesel 34% and cooking gas 17%. Before that, the price hike was already underway.

In 2018, for example, there was a record of a historic record in the value of gasoline. Since then, things have only gotten worse.

One of the main reasons for these increases is the Import Parity Price (PPI) policy, adopted by former president Michel Temer (MDB), after the coup against former president Dilma Rousseff (PT) that led him to command the parents.

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The PPI determines that the prices of derivatives are readjusted based on the variation in the international market. Gasoline, diesel and cooking gas prices rise with the dollar.

There is capacity in Brazil to produce what is necessary for all internal demand. However, the dismantling of Petrobras makes this reality increasingly distant. Today, the state-owned company produces less than it could and is undergoing a partial privatization process.

The domino effect of the rise in the prices of these products has huge potential in Brazil, a country dependent on fossil fuels to transport almost everything.

Furthermore, with precarious access to cooking gas, the population is increasingly subject to food insecurity and hunger.

The foods

:: In Porto Alegre, the basic food basket increases in June and starts to cost R$ 642.31 ::

A study by Kantar consultancy, shows that the increase in the price of food has reached such impressive levels that it is changing the traditional diet of Brazilians.

Today, food consumption among low-income families is increasingly limited to industrialized breads, sausages and ultra-processed products.

The historically and nutritionally balanced combination of rice, beans, animal protein and salad is weighing heavily on the pocket. Even before the pandemic, the rise in the dollar made beef sales abroad soar. With little product in the domestic market, prices to Brazil also increased.

This same devaluation of the real impacted rice and oil prices, for example. For the coming months, the productive sector is also expected to increase in chicken and pork and eggs.

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In addition to the dollar, production costs also increase, impacted by the rise in energy and fuel and the record prices of corn and soybeans, used to feed livestock.

The Brazilian Association of Animal Protein (ABPA) already predicts high in chicken, pork and eggs for this reason.

The process of climate change also has a bearing on the rise of food. In Brazil today, it is responsible for the worst drought in more than 90 years. The scenario should increase the price of milk, for example, which depends directly on the rainfall regime.

If the country had a policy to encourage and support family farming, the solution for domestic supply at fair prices would be in place. But the sector has not even been able to get assistance to face the pandemic.

The energy

To complete the combo of skyrocketing prices, Brazil is currently experiencing one of the most serious energy crises in history. The value of the electricity bill is already at the highest possible flag and this flag was readjusted in July, in an attempt to contain consumption by the population’s pocket.

Again the problem is caused by environmental changes and the historical drought. Specialists also claim that there was no preparation to face the period and that Brazil’s energy policy today privileges company profits.

:: Article | Privatization of Eletrobras should cause a 25% increase in the electricity bill ::

The more expensive energy already considerably increases the production costs of everything. If, in addition, there are blackouts, the damage increases. To complete the tragic formula, with insufficient generation, the government had to activate the thermoelectric plants, which are more polluting.

In the 2002 energy crisis, one way out used by the administration of Fernando Henrique Cardoso (PSDB) was to expand Eletrobrás’ investments. With Bolsonaro at the Planalto Palace, the company was privatized.

The future

Faced with this scenario, the budget of Brazilian families is increasingly flat. Second, in June, the Brazilian population completed a year without real gain in income, according to the Economic Research Institute Foundation (Fipe).

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The World Bank predicts that the effects of the crisis on wages in Brazil will last for nine years. In the report “Employment in crisis: Trajectories for better jobs in Latin America after Covid-19”, the institution warns that, when there is large-scale job loss, the recovery is slower.

Currently, there are more than 14.8 million people without work in Brazil, 14.7%, according to data from the Brazilian Institute of Geography and Statistics (IBGE).

Edition: Douglas Matos

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