‘Airport price’? Inflation shoots up in 2021 and should be the highest since Dilma’s government, predicts the market | Economy

The perception of price increases in Brazil has multiplied, in recent days, posts on social networks that compare values ​​found in markets and street commerce with salty prices charged at airport stores.

“It looks like everything is at an airport price,” wrote a Twitter user.

“We can’t go to the airport, the airport comes to us,” joked another.

Food, electricity, gasoline and gas cylinders are among the various items whose prices have soared in Brazil in recent months.

  • Financial market raises inflation estimate to 7.11% in 2021 and sees lower GDP growth

Inflation data for the year so far and projections for the coming months show that this is not just a one-off consumer feeling: inflation is now persistent and widespread. And Brazil should have, this year, the highest inflation since 2015, according to financial market economists.

It is estimated that the country’s official inflation – measured by the IPCA (Extended Consumer Price Index) – will end the year at 7.11%, according to calculations by financial market analysts released by the Central Bank.

This is the most recent data from the Focus Bulletin, published this Monday (8/23), with a survey carried out with more than one hundred financial institutions last week.

In recent months, analysts’ estimates have only grown: this is the twentieth consecutive week that the inflation projection for 2021 has risen, according to the Focus Bulletin.

The most recent data released by the IBGE shows that, last month, the IPCA had the biggest increase (0.96%) for a month of July since 2002. In the year, the accumulated increase is 4.76%, and in the last few 12 months, of 8.99%.

All regions surveyed by the IBGE increased in July. And, among the groups of products and services surveyed, the biggest increase is in housing – affected by the increase in electricity.

Last year, inflation measured by the IPCA was 4.52%, the highest index since 2016. The result was mainly influenced by the increase in food prices.

Despite Brazil experiencing a generalized high inflation, the poorest families have been suffering a higher price increase than the richest families.

In July – the most recent data available – the price growth rate was higher for the very low-income class (1.12%) compared to that observed for the high-income group (0.88%). In 12 months, the rate was 10.05% for the poorest families and 7.11% for the richest, according to the IPEA Index of Inflation by Income Range.

Higher food prices weighed mainly on poorer Brazilians — Photo: Getty Images via BBC

This indicator divides Brazilian families into six income brackets and assesses how inflation affects, month by month, each of these groups. According to the survey’s classification, very low-income families are those that have less than R$1,650.50 in household income. And families classified as high-income are those whose household income is greater than R$ 16,509.66.

When analyzing the behavior of prices in the last 12 months (until July), the report points out that there was a generalized increase in inflation.

For people with lower income, the increase in food at home, electricity and bottled gas weighed more. In the same period, for high-income families, the readjustment of fuels, air tickets and electronic equipment weighed more heavily.

In August, President Jair Bolsonaro acknowledged high inflation – a “big number” – and said the government was taking action. He cited the independence of the Central Bank and the increase in the interest rate. Days later, he cited faith as an instrument to overcome economic problems.

“The people have suffered from this, there is inflation, there is unemployment, there are really harrowing days. What can I say to you with faith, with will, with belief, we can overcome these obstacles,” he said, at a ceremony at the Assembly of God no stop.

Inflation forecast for the end of the year has been increasingly distant from the government’s central target in 2021 – which is 3.75%, with a tolerance interval of 2.25% to 5.25%. To try to take inflation into this range, the Central Bank may raise the Selic, the economy’s basic interest rate.

In early August, in view of the soaring prices in Brazil, the Monetary Policy Committee (Copom) of the Central Bank decided to increase the Selic rate to 5.25% per year. It was the fourth consecutive increase in the rate in 2021 and another increase is already expected at the next meeting, which will take place on September 21st and 22nd.

While rising interest rates can control the widespread price rise in the economy, it also has the potential to have other consequences. Among them are the increase in interest rates charged by banks, the increase in expenses with interest on the public debt and a negative impact on the population’s consumption – which, in turn, affects employment and income.

That is why inflation in a low-growth scenario is even more challenging for the monetary authority – and, above all, for the population.