Is high inflation in Brazil the government’s fault? – 10/22/2021

Is inflation in Brazil the fault of the government or is it a reflection of what is happening in the world? According to economists who have heard UOLThere was even a global rise in food and oil prices. But inflation could fall if the Brazilian government does not fuel the appreciation of the dollar and take measures to limit the impact of rising prices in the world, according to experts.

For a group of economists, among the measures that could have been taken by the government is the use of the Food Regulation Stock, which is an oil fund for the food sector. fuel, and a greater presence in the foreign exchange market. Another group disagrees with these measures as they would be attempts to artificially manipulate market prices, with little lasting effect.

But two groups of economists have heard before UOL We agree on one point: if there was less uncertainty about the policies of the current government, the dollar would not rise much, and inflation, according to the schedule, would be lower.

The highest inflation rate in the world

Minister of Economy Paulo GeddesAnd He claims that inflation is the highest worldwide. In fact, price indicators have changed from levels since the beginning of the epidemic: in the group of the 20 richest countries in the world (the Group of Twenty), the inflation rate has risen from 3.5% to 4.5% since the beginning of 2020, pulled by four factors.

• raw materials: After the interruptions in the production of various economic activities, consumers began to buy again, starting with China, increasing their purchases of metals, steel, grains and protein.
• Consumption change: People who have stopped spending on leisure time away from home, due to social isolation, are choosing to consume more goods, such as televisions and appliances, just at a time when industry and transportation are still facing constraints to meet more demands.
• petroleum: The world’s main energy source, oil is rising with the largest consumption in the world, rising nearly 50% since the start of 2020.

Inflation in the 20 richest countries in the world, accumulated in 12 months:

1. Argentina: 51.42%
2. Turkey: 19.58%
3. Brazil: 10,25%
4. Russia: 6.69%
5. Mexico: 6.00%
6. United States of America: 5.40%
7. South Africa: 5.08%
8. India: 4.81%
9. Canada: 4.09%
10. Germany: 3.87%

Inflation rose further in Brazil

In Brazil, high inflation has been more powerful. The IPCA (National Broad Consumer Price Index) jumped from 4.31% in 2019 to 10.25% in the 12 months to last September. Watch the main factors of inflation in the country:

• dollarHere, inflation is driven by the dollar, which has risen 25% since the beginning of March 2020. The dollar makes everything that has been priced in the international market, such as fuel, more expensive.
• fuel: Higher gasoline, diesel, and ethanol prices pollute other prices, as transportation is included in the cost calculations for all sectors of the economy.
• energy: Water scarcity prompted the government to activate thermal power plants, which cost more than hydroelectric power plants.
• foodAlready rising food prices suffered another impact due to the frost affecting crop production.

Price variance in the 12 months to September

• food: 14.7%
• rice: 11.4%
• beans: 12.6%
• corn: 16.7%
• Vegetables and vegetables: 18.1%
• meat: 24.9%
• Soy oil: 32.1%
• Gas cylinder: 34.7%
• Residential Electricity: 28.8%
• fuel: 42%

What should the government have done?

For a group of economists, inflation is stronger and more resistant in Brazil, mainly due to uncertainty about the government’s economic policy and the lack of concrete measures to prevent prices from rising in some sectors.

The Brazilian currency is detached from the fundamentals of our economy due to political uncertainty. There is a lack of public policies capable of cementing investor confidence, reducing the supply of foreign currency and keeping the dollar rising.
Roberto Padovani, chief economist at BV Bank

The problem of inflation would be less serious if the president were someone else. He has a stake in this.
Melson Da Nobrega, former Minister of Finance

Why did the dollar rise so much? It’s about the signals that the Brazilian government has sent to investors. If the dollar does not come to Brazil, the dollar will rise and pollute the entire economy.
Fausto Augusto Jr., Technical Director of Dieese

What can the government still do?

Stop improvising and improve communication: According to economists, the fundamentals of the Brazilian economy justify the arrival of the dollar to about 4.70 Brazilian real instead of 5.50 Brazilian real. But uncertainty about the government’s commitment not to increase spending increases the country’s risks and keeps foreign investors away.

All the economists who listened to them said the government should then clarify what the public spending plan is not only for 2021 but also for 2022. UOL.

NS Comes and goes from announcing new help to families, on Tuesday (19), cited by economists as an example of improvised projects in Brasilia.

Interfere in the economy or not?

Other measures that can be adopted to contain inflation, on the other hand, are controversial because they represent a kind of market intervention.

Use regulatory stock: The government should use stock from Conab (the national supply company) to supply the market with more rice, corn, beans and soybeans, for example, and lower prices.

When the price of the product falls below the cost price, the government buys a part of the crop, and pays the minimum amount to the product so that it does not incur a loss and thus grows a new crop.

This stock is sold in the market when the price rises too high for the consumer. The problem is that stocks have practically run out in recent years.

Stocks of these products function because they meet the low domestic supply when part of the production is directed abroad, due to higher prices. But the government adopted the strategy of reducing stocks, and lost its ability to act.
Nelson Marconi, Economist and Professor at FGV

According to Marconi, coordinator of the Center for the Study of New Development at the Getulio Vargas Foundation (FGVcnd), regulatory stocks help hold prices in times of strong increases for various products. Corn, for example, is used to feed chickens and pigs and thus affects the values ​​of these foods.

oil box: Part of the fuel adjustments could have been reduced by Petrobras If the oil company is financially compensated for holding prices for a certain period. This money will come from a fund, provided by the company’s prior profits to the government or taxes.

According to economist André Roncaglia, professor at Unifesp (Federal University of São Paulo), oil affects almost everything in the Brazilian economy, which is why adjustments must be slowly transferred to consumers.

This box will not be used to prevent mods, but to prevent them from being too powerful and in such a short time. Countries such as Chile and France use this mechanism so that the entire economy does not suffer from the volatility of international prices.
André Roncaglia, Economist and Professor at Unifesp

Surface measurements don’t help

Former Finance Minister Melson da Nobrega, a partner at the consultancy Tendências, says artificial measures to contain prices had already been used, as in 2015, by the Dilma Rousseff government, to fight electricity adjustments, and the bill came later.

Melson da Nobrega says that regulatory stocks no longer work as well as they used to, because Brazil today is more open to the global economy. If food prices here are artificially low, the producer increases exports.

For the economic advisor to FecomercioSP (São Paulo’s trade association), Guilherme Dietze, the oil fund can ease fuel adjustments, but even so, the result will be negative for a part of the population, since the bill will be paid even by those who do not have a car.

For these economists, the most convenient tool that the government must tame inflation – in addition to sending a clearer message about spending policy for the next year – is actually raising interest rates. What has already been done. But at a cost: The economy will grow less.

The Economy Ministry said it would not comment on the matter, and the central bank did not even respond to the publication of this text.