The IPCA-15 (Extended Consumer Price Index-15) of 0.89% recorded in August was the worst for month in the last 18 years. Economists understand that the result reveals an unprecedented scenario: for the first time since the adoption of the Real Plan, Brazil is facing scarcity-driven inflation. Generally, the increase in the circulation of money is due to excess demand, which drives prices up.
The problem is more specifically noticed in the automotive industry, where delivery times for new cars exceed 120 days. Consequently, this has heated up the used market. To reduce delays, vehicles have come to market without accessories.
A survey by consulting firm Luvi One highlights that, despite the economic problems faced by the country since then, with the explosion of the exchange rate band system, energy crisis, electoral risk and political instability, the moment presents something new: the lack of inputs. There is a shortage of semiconductors, steel, wood and cotton, as pointed out by the company’s CEO, economist Felipe Guterres.
“We never faced anything like this in the Real period, with shortages in so many sectors of the economy, although we face a scenario of high liquidity, because the government injected money into it so that it would not go bankrupt. Something that was repeated around the world to avoid the economic damage of lockdown”, he assesses.
The shortage of products affects the production chains, which stopped for long periods and work with stocks even lower than usual. The impacts can be felt mainly in the automotive industry, where delivery times are extended and can exceed 120 days.
Coordinator of the Consumer Price Index at the Brazilian Institute of Economics, Fundação Getúlio Vargas (Ibre/FGV), André Braz agrees that there is scarcity inflation, a scenario that he intends to repeat around the world, but highlights other variables that make up this index in the Brazil. Among them, increases in fuel prices and the energy crisis.
“We have a certain scarcity, but there are other pressures in parallel. Increased oil and water crisis are two other factors affecting prices. This reduces the supply of food and, added to the lack of products, compromises the production chain. In the automotive sector, we have seen an increase in the price of new cars and also in the used market. Workshop services also raised their prices, to keep up with them,” he explains.
The two experts agree that the expectation is for lower inflation in 2022, but they think it is unlikely that prices will settle down quickly and return at some point to the pre-pandemic level. The explanation for this lies in the pent-up profit margins since the beginning of the pandemic. Braz expects retraction only from the second half of 2022.
“It depends on the normalization of the production chain. We should have an interest rate increase to contain inflation, and this holds up economic activity a lot, preventing price increases. If it happens in the first semester, it might be easier. It depends on solving the water issue. For this, we need to know if we will have a summer with little or a lot of rain. All of this will have an impact on the economy”, ponders Braz.
Guterres is not sure that prices will return to the level before Covid-19’s presence. He agrees that some segments, especially the food, must have recoil. But, in general, the trend is for the values to consolidate at a new level.
“Prices do not return to pre-pandemic due to structural reasons and the change in level. Even if there is a balance between the supply chain, between supply and demand, they must stay above. We change a step for various prices. What can happen in the long run is a bullwhip effect: the industry’s reaction when there is too much scarcity and too much demand. It adjusts and causes an oversupply. But it’s still too early to see that happen”, he concludes.