Prolonged rise in prices of basic items contaminates sectors, and inflation becomes a drag on GDP in 2022

SAO PAULO AND RIO – The main indexes show that inflation is approaching 10% in annual terms, but the app driver Paulo Maurício de Santana, 37, has another measure: the increasing journey at the wheel to pay the bills and bringing food to his wife, Paola, and ten-month-old twins in Catumbi, in the North Zone of Rio. He currently drives ten hours a day.

The income for the nine days of the month, R$ 2 thousand, goes only to rent a car and fuel. What you earn for the rest of the month is barely enough for the bills. The electricity bill this year jumped from around R$ 120 to R$ 160, even with the family saving, he says. At the table, the solution was to exchange high-priced food for cheaper ones. Meat became luxury.

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“We eat a lot more chicken now. Only a kilo of meat comes into the house per month, usually a lot cheaper, which is cheaper – says the former taxi driver, who saw his savings dwindle in the pandemic, sold his own car to pay debts and postponed the dream of giving down his own house . — The CNG (car fuel) went up a lot, but the application rate went down. In races where I took R$20, now it’s R$15.

The prolonged devaluation of the real against the dollar and the rise in food, raw materials, fuels, electricity and other basic items have a ripple effect on the economy and increase consumer discomfort.

August was a severe month for the hydrological regime of the National Interconnected System (SIN) Photo: Domingos Peixoto / Agência O Globo
August was a severe month for the hydrological regime of the National Interconnected System (SIN) Photo: Domingos Peixoto / Agência O Globo

This spread of high prices in a scenario of high unemployment and contracted income makes inflation a threat to the growth of the Gross Domestic Product (GDP) in 2022. Economists are already talking about stagflation, the perverse combination of stagnation with inflationary pressure, in the election year .

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Right after the announcement last week of the GDP performance in the second quarter, with a 0.1% retraction, banks, economists and consultants intensified the movement to reduce their growth estimates for 2022. While the government talks about expansion of 2.5%, analysts have revised forecasts for next year to less than 2%.

loss of real income

The chief economist at MB Associados, Sérgio Vale, assesses that high inflation brings a loss of real income, which affects consumption. And the signs of an economy at risk tend to affect investments, he says:

— The conjunction of a water crisis with a sharp rise in interest rates causes a feeling of imminent stagflation. Our expectation of a 1.4% increase in GDP for 2022 should be revised downwards in the coming months.

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For Simão Silber, president of the Board of Trustees of the Institute of Economic Research Foundation (Fipe), at USP, the situation could get even worse, with a recession in 2022. The risk, he warns, is that the price markdown becomes a snowball:

— In a country with a history of indexing, it was a mistake to let inflation go that far.

Prices Photo: Arte O GLOBO
Prices Photo: Arte O GLOBO

Inflation has gained traction now, with the IPCA accumulating an increase of 8.59% in 12 months, but the devaluation of the real has been putting pressure on prices since the beginning of the Bolsonaro government. The dollar started 2019 at BRL 3.85 and, after approaching BRL 6, it is currently at BRL 5.20. In 2020 alone, the dollar rose almost 30%, the biggest increase since 2015.

Dollar reflects risks

Investors pass on weaker-than-expected US employment data.  Photo: OZAN KOSE / AFP
Investors pass on weaker-than-expected US employment data. Photo: OZAN KOSE / AFP

The exchange rate is influenced by the country’s fiscal and political risks and affects various prices. Since January 2019, the IPCA has risen by 13.8%, according to a survey by MB. The Consumer Price Index (IPC), calculated by Fipe and which measures inflation for families with income between one and ten minimum wages in the capital of São Paulo, accumulates an increase of 16.95% in the same period.

The exchange rate factor should affect inflation for a longer time, says economist Sérgio Kannebley Júnior, a professor at USP in Ribeirão Preto (SP). It is estimated that between January 2020 and December this year, the exchange rate has had an impact on the Wholesale Price Index (IPA) between 2.14 to 2.94 percentage points. In the IPCA, the impact in two years reaches 1.7 percentage points.

— The exchange shock hits imports first and is reflected in wholesale inflation rates. As time passes, it comes to consumer prices – says Kannebley, noting that government spending influences. — The inflation of 2021 is gone. The problem is now 2022. The risk is stagflation. It’s hard to believe in austerity in an election year. Most likely, this bill will fall into the hands of the next government, whichever it may be.

more expensive food

Supermarket Photo: Pixabay
Supermarket Photo: Pixabay

The exchange boosts the effect of high items quoted on the international market, such as grain. In 2020 alone, the price of corn rose 100%. In supermarkets, chicken and pork prices rose 30% and 20%, respectively. According to Embrapa’s calculation, the cost of production of these items rose 50% in the last 12 months, contaminated by the rise of corn and soybean meal, which feed the animals.

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— Not all the cost increases have been replaced yet. We have the harvest of corn and soybeans at the end of the year, but the supply will only be regular in the second harvest of next year – warns Ricardo Santin, president of the Brazilian Association of Animal Protein (ABPA).

In the commodities metal, iron ore boosted the rise of steel, a civil construction input, automakers and appliance factories. Also fired aluminum and copper. Added to this is the price of a barrel of oil. The Brent type went from US$ 63 in 2019 to US$ 72, which boosted fuel prices.

High costs pressure industry, which sees transfers

Nissan's plant in Resende will have production at a standstill as of this Friday Photo: Márcia Foletto / Agência O Globo (07/13/2017)
Nissan’s plant in Resende will have production at a standstill as of this Friday Photo: Márcia Foletto / Agência O Globo (07/13/2017)

The petrochemical company readjusted the ethylene, which is in plastic packaging, synthetic fibers, beauty products and hospital material, by almost 100%. This is after naphtha, an oil derivative that is the industry’s raw material, jumped from US$ 200 in early 2020 to US$ 670 in July 2021.

– We will probably end the year with a drop in the profit margin. As much as companies readjust their prices, they can’t pass everything on — says Fátima Ferreira, economist at the Brazilian Chemical Industry Association (Abiquim).

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The shoe manufacturer Boa Onda, from Rio Grande do Sul, had polyurethane, the raw material for insoles, as its main villain, but not the only one. The petrochemical product has risen 80% since 2019, but electricity also puts pressure on costs, says Cássio Romani, the company’s brand manager.

Boa Onda started recycling tailings and joined the free energy market to reduce the bill by 25%. The cost of paper packaging and transport, he could not alleviate. As a result, the price of babuche sandals, one of the brand’s flagships, rose 24% for retailers and 30% for consumers.

— Inflation is harmful, perverse. We managed to get around in some ways, but consumers today pay more to have the product on their feet – says Romani.

Companies juggle to avoid passing on to consumers because, unlike inflation caused by high demand, the current one is linked to the costs of products and services amidst the crisis in the labor market.

Guilherme Moreira, from Fipe, still sees inflation held back, as several increases were postponed in the pandemic, waiting for the economy to recover in 2022:

— When consumption returns, the increases are passed on.

He recalls that the increase in consumption abroad also influences prices here, because it stimulates exports and reduces supply in the country:

— Brazilians compete for meat with Europeans and Chinese