It is true that inflation is on the rise in most countries. But economists heard by G1 they say that the comparison made by Guedes has little foundation.
In eurozone countries, the Eurostat agency found inflation of 2.2% in July. It is the highest rate since October 2018 and above economists’ expectations of 2.0%. But the European Central Bank has signaled that shocks are likely to ease in the coming months and is unlikely to change its monetary policy.
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Compared to the Europeans, Brazil did exactly the opposite: it entered a course of rising interest rates to contain inflation. In July, the Extended National Consumer Price Index (IPCA) ended the month up 8.99% in 12 months. The Monetary Policy Committee (Copom) made four increases in the basic interest rate, the Selic, and two major changes in the course of its monetary policy.
First, the Copom had stated that it monitored inflationary shocks, but sought a neutral level of real interest in the country. At the last meeting, the “neutral” level limitation was abandoned, which shows a willingness to increase the Selic rate to the extent necessary to contain the rise in prices.
In 2021, the center of the country’s inflation target is 3.75%, with a ceiling of 5.25%. There is no hope for the Copom to achieve this objective. According to the Focus bulletin, a survey conducted by the Central Bank (BC) with financial market agents, the estimate for this year’s IPCA is 7.11%, the 20th consecutive increase in the weekly report.
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If there is any resemblance to the United States, it is in the official inflation rate higher than the standard. In the 12 months through July, the consumer price index in the country increased by 5.4%. The causes, however, have little to do with the inflationary shocks present in Brazil.
There, the accelerated recovery of the economy – driven by unprecedented stimuli in the country and the reheating of the services sector – are added to the interruptions in the industrial supply chain as the main drivers of the rise in prices.
In Brazil, there is a different equation. In common with other countries, there is some price pressure due to the scarcity of inputs in the industry. But the country suffers more with its particularities.
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One of them is a severe water crisis, which increases the price of production of goods, services and, especially, housing. In last month’s result alone, housing costs rose 3.1%, pulled by electricity, which rose 7.88%.
The drought forced the National Electric Energy Agency (Aneel) to raise the energy tariff to the maximum level charged to consumers through the tariff flag system and also readjust the red flag level 2 price ceiling by 52%.
Another is the fiscal disorganization and the political crisis caused by President Jair Bolsonaro, which increase the distrust of international investors and impact the exchange rate. The devalued real favors exports and depletes the domestic market. This is the origin of the rise in food prices, which had an aggravation of the last month’s frosts.
Financial market raises inflation estimate to 7.11% in 2021 and sees lower GDP growth
There was also a sharp rise in the price of commodities on the international market, caused by the reheating of powerful economies such as China. If, on the one hand, domestic exporters benefited from demand, on the other there was an increase in the price of inputs. More expensive oil, quoted in dollars, reflects on fuel prices. Wheat, in flour and in food value – and so on.
For economist Juan Jensen, a partner at 4E Consultoria, there was, indeed, global pressure on commodities, but this is a process that is already reversing. Furthermore, a commodity cycle should have reduced the value of the dollar (and therefore of the products that the US currency influences here) by the inflow of money into the country, but domestic problems overlap.
“The prospects for the country are not good. The fiscal is not good, growth for next year should be low. Guedes is wanting to evade responsibility, either his or the Central Bank,” says Jensen.
Sérgio Vale, chief economist at MB Associados, agrees and states that additional pressures on the exchange rate, energy and commodities should persist in 2022.
The analyst recalls that, despite some elements of comparison, inflation expectations in Brazil are more difficult to control than in the United States or Europe. “Our economy has more complicated inertial and structural components than the US economy,” he says.
“The minister is right in saying that the BC will act. The pity is that he will act alone because the fiscal pressure in an election year will leave him abandoned in the fight”, says Vale.
Fábio Romão, an economist at LCA Consultores, says that it is normal for our inflation rates to be higher than those of more developed economies, but he also explains that the level of inflation that the country has reached creates an uncomfortable inertia for next year.
“The American economy also felt the pandemic, but it is accompanied by many incentives to see a stronger GDP this year. Europe has much lower growth rates and carries less inflation,” he says.