Raising Epidemic – Opinion

With money short, expensive food and forced to save on gas and electricity, the average Brazilian has already faced a price increase of 5.81% in the year and 9.30% in 12 months, according to the August inflation preview. The monthly increase of 0.89% was the biggest for August since 2002, when it reached 1%. The current inflationary epidemic has infected eight of the nine large groups of goods and services surveyed. It became much more difficult to live, eat, use their own vehicle and enjoy radio or television, but Economy Minister Paulo Guedes is comfortable and not very concerned. The numbers are from the Extended National Consumer Price Index – 15 (IPCA-15), with prices collected between July 14th and August 13th.

An annual inflation of between 7% and 8% is “in the game”, the minister said on Monday, denying any out of control. Inflation is rising around the world, he argued, and should reach about 7% in the United States. Not quite. In Brazil, the inflationary surge is much larger than in almost the entire emerging and developed world. In the 12 months to June, consumer prices rose by an average of 4.6% in the Group of 20 (G-20), 2.2% in the European Union and 4.1% in the Organization for Economic Cooperation and Development (OECD) as a whole. . In the same period, the IPCA increased by 8.35% in Brazil, while unemployment remained more than double that observed in middle and high income economies.

Brazilian inflation is out of the game, contrary to the assessment of minister Paulo Guedes. To start with, the latest market projection, of 7.11% in 2021, far exceeds the target (3.75%) and up to the tolerance limit (5.25%) set by the National Monetary Council. Second, the estimated market price increase for next year, of 3.93%, is well above the target center (3.50%). If the forecasts are right, prices will continue to rise rapidly, while economic growth will be equal to or even less than 2% – below mediocre, therefore.

In addition, the set of projections has worsened and should continue to worsen, if President Jair Bolsonaro insists on causing insecurity regarding federal spending, public debt and the sustainability of official finances. High interest rates, unstable exchange rates and an expensive dollar will continue to complicate the scenario and make it difficult for the Brazilian economy to recover, which is still very slow.

It is risky to bet, at this time, on an inflation of 7.11% in 2021. It will be necessary to contain the current pressures to lower the accumulated rate and bring it to that level, which is already very high. Despite the fluctuations, the monthly rates have remained very high and the variations accumulated in 12 months have continuously increased.

Having surpassed 9%, the rise in the IPCA-15 in 12 months foreshadows a picture very similar to that of President Dilma Rousseff’s final months. From November 2015 to February 2016, annual inflation rose by 10%. The surge was contained with a sharp rise in interest rates, enough to quickly change expectations and curb prices. In addition, the new government, though intended only to complete the term of a president removed from office, had shown a strong willingness to begin repairing public accounts. Changes in the Ministry of Finance and in the direction of the BC certainly contributed to the change in expectations.

But fighting inflation today is especially complicated by several factors. To start with, it is necessary to take into account the spread of price increases. The increases occurred, in the last month, in eight of the nine big groups of goods and services. The problem cannot be solved by taking care of this or that item. The water crisis, with its effects on the cost of electricity, is certainly a very important issue, but it is one among many. The BC’s board of directors still has credibility, but has been unable, in its work, to nullify or even mitigate the effects of the presidential action, the disorientation of the economic team and the discredit of the minister of economy. No monetary tightening makes up for such a bad executive headed by a devastating president.