Brazil is about to go through another period hyperinflation? For the 17th consecutive week, Newsletter Highlights Once again increase expectations inflationary 2020, as measured by the Broad Consumer Price Index (IPCA). And this started triggering the alarm in the media,
According to the Central Bank (BC) survey published on Monday (7), market experts predict inflation this year at 4.21%. About a tenth of the increase is considered hyperinflation, in the economic literature that occurs when prices rise at least 40% per month.
Four weeks ago, analysts’ predictions heard central bank is a price increase of 3.20%, while last week it was estimated at 3.54%.
O Newsletter Highlights This Monday also marks the 21st consecutive week of increasing the forecast for the Common Market Price Index (IGP-M), giving 24.09%.
In the case of confirmed estimates, this year’s inflation will be slightly lower than the target set by the National Monetary Council (CMN), 4%, with a 1.5 percentage point tolerance, from 2.5% to 5.5%.
According to the Minutes of the Final Meeting of the Monetary Policy Committee (Copom), this year’s inflation in the hybrid scenario is 2.1%. For 2021, the target is 3.75%, ranging between 5.25% and 2.25%. O BC estimated price increase of 3.34% by 2021.
The risk of hyperinflation?
For some observers, this increase in inflationary pressures is a warning sign of the state of the Brazilian economy. Many people have already started talking about the risks to expanding Gross Domestic Product (GDP) by 2021.
Who said about “back from hyperinflation”Based on the words of the Minister of Economy, Paulo Guedes, was brought on November 11 during a Congressional hearing.
“This price increase is essentially the result of a shock in certain industries, such as food, and it is a combination of a depreciation in the exchange rate, affecting sectors. another, and let’s remember that the exchange rate between the dollar and the real has weakened a lot this year, ”he explained with SUNO Notícias João Ricardo Mendes Gonçalves, PhD in Economics at the University of Porto and professor at IBMEC-SP.
For the economist, “this is a temporary shock. In other words, the nature of this unusual rise, surprising the whole market, is temporary, so we haven’t really seen inflation yet. For now, what we see is just a shock that will likely disappear in the coming months.
According to this expert, “the risk of hyperinflation is very low. It can only happen if we throw away all that we have learned in recent years, especially with the Reality Plan and beyond, regarding the governance of economic policy ”.
Regarding the risks of hyperinflation, Mendes Gonçalves reiterated that there is no need to confuse Guedes’ speech with the current situation, as the Minister mentioned the risk of instability if Brazil fails to repay its debt by 2021, public accounts are not controlled. it will scare the market.
Document hyperinflation occurs when price increases exceed 40% per month. So something very different from what we are experiencing at the moment. I don’t think we have a predictive chance for a hyperinflation scenario unless there is such a level of disorganization of economic activity that it systematically causes the Brazilian economy to spin. back to this process. I think it is very unlikely, because Brazilian society already understands the importance of controlled inflation, ”explained Professor. IBMEC-SP.
Mendes Gonçalves recalls how “the great Achilles heel of the Brazilian economy is the financial part”.
“It has always been our problem. Government spending has a certain mismatch with revenue, meaning that our trajectory today is linked to our debt, even before the coronavirus (covid-19) began. ) is an exploding trajectory. As long as economic actors are comfortable providing resources to the government to finance this debt and keep rolling, things will continue to be. But we don’t know if this will go on forever. There may come a time when the risk of non-compliance, non-payment is too high and we may have difficulty in payment, ”explained the professor.
The professor recalls how the highly productive idle Brazilian economy, coupled with a high unemployment rate, has limited inflationary impulses. Mendes Gonçalves explains: “The forecasts we are seeing show that inflation is within or even below the inflation target.
The current inflation situation is much better than it was in the 1980s
For teachers Paulo Dutra Constantin, Coordinator of the economic science course at Armando Álvaro Penteado Foundation (FAAP) In São Paulo, the current price increase is mainly due to the impact of emergency aid, which brings higher income to a certain group of people who start asking for more basic products, causing prices to rise. up.
“External demand is also increasing, mainly because China is starting to grow rapidly, with a high growth rate, and this is also consuming the majority of the Chinese population. This has had a big impact on global prices, as China is the largest consumer market on the planet. And that led to a price increase, ”explained Dutra Constantin.
In addition, he recalls that the price was pushed up because the acreage did not increase but decreased the stockpile and increased inflation.
In the event of a return to the hyperinflationary era, Professor FAAP emphasized that “there is no risk of going back to the hyperinflation era that we lived in the 1980s”.
“The tax problem was much better than what we experienced during that period, when there was absolutely no fiscal control. Without a single budget, spending ceiling or the controls we have today in our conduct fiscal policy. It is very different. And we still have much safer and more independent institutions, such as the Central Bank (BC), the body that commands monetary policy and is obliged to maintain the purchasing power of money, and it goes on and on. the more independent “, the professor explained. .
For Dutra Constantin, even as the government pursues an outdated economic policy, BC directors have an obligation to correct the excesses. Even because of the personal risk they take, with probable consequences could reach criminal-legal territory.
2021 years of instability
Both experts agree that next year’s growth could be hampered by the complexities of public accounts.
For Professor Dutra Constantin, economic growth may be hampered because tax issue. “Brazil should continue Rent reform it lives Rent reform, But this year will not happen and we are not sure that it will happen in 2021 ″, the professor emphasized.
Without better control of public accounts, he said, the Central Bank could be forced to raise interest rates, which could reduce economic growth next year.
Opinion was shared by Professor Mendes Gonçalves, who argued that recovery “is much slower and more complicated because gaps will expose, such as unemployment, inequality, shutting down companies. and because of Brazil’s public account ”.
“My GDP forecast next year is not very optimistic. Professor explains whether it was due to the situation created by covid-19, but even before that, Brazil’s economy was slipping, not developing as expected of an emerging country.
According to him, “the weaknesses of the Brazilian economy will emerge next year, the historical mediocrity of our growth and the fiscal issues that will harm our GDP even more. inflationary as it is now. But even so, I don’t see it hyperinflation in vision in the coming months, ”emphasized IBMEC-SP professor.