How did Brazil make inflation fall in July?



Alberto Fernandez and Jair Bolsonaro
Alberto Fernandez and Jair Bolsonaro

By the hand of a series of orthodox measures, Brazil managed to lower inflation in July, while Argentina was placed at the top of the regional ranking.

Consumer prices in Brazil fell 0.68% per month in July, the biggest drop since the beginning of the historical series in 1980, with which they accumulated 10.07% in 12 months, the official statistics institute (IBGE) reported on Tuesday. ), according to international agencies.

The experts consulted by Infobae explained the reasons for the Brazilian deflation, as opposed to the exponential increase in inflation in Argentina, which in July it registered a higher rise than Venezuela, according to private data from both countries.

The data, which represents the first drop in inflation since May 2020, contrasts with the trend that Brazil is going through and which has led to strong increases in the interest rate since last year. Brazil’s central bank aims to put rates at 14 percent by the end of this year.

Raising interest rates and lowering taxes is Brazil’s formula for achieving this result

It should be remembered that in June, retail prices had advanced 0.67% and accumulated 11.8% in 12 months.

The July rate “was mainly influenced by the Transportation sector, which had the most intense fall (-4.51%), and contributed with the greatest negative impact (-1.00 percentage point) on the index”, specified the IBGE in a statement. The decline in this category is explained by the reduction in fuel prices (-14.15%) in the period, from a reduction in state taxes.

In addition, the state company Petrobras carried out several cuts after Bolsonaro changed his president for the third time at the end of June, after criticism of the company’s price policy, and on the way to the elections in which his re-election against Lula.

The president of Brazil, Jair Bolsonaro, is playing for re-election with orthodox measures and greater social aid to beat Lula
The president of Brazil, Jair Bolsonaro, is playing for re-election with orthodox measures and greater social aid to beat Lula

The price of residential electricity also fell in July (-5.78%), as “a consequence of a tariff and tax reduction,” it was indicated.

With the result of July, inflation was located in the first seven months of the year at 4.77%, close to the limit of the Central Bank’s goal of 5% for 2022.

Inflation in the first 7 months in Brazil was 4.7%, compared to 45% in Argentina

On the other hand, the official indicator for July was lower than the average of -0.65% of almost 40 financial institutions and consultants surveyed by the economic newspaper Valor.

climb on food

On the other hand, food and beverages continued to rise, with a rise of 1.3%, driven, among other things, by the 25.46% increase in long-life milk. The index accumulated in 12 months rose to 14.7%.

This inflation caused the Bolsonaro government to increase the Brazil Aid plan from a minimum of 400 to 600 reais (around 117 dollars at current exchange rates), from this month to December, to 20.2 million vulnerable families. In addition, gas aid will be paid to families and support to truckers, a key sector in electoral support for Bolsonaro in the 2018 elections.

One of the government’s key tools has been the 12 consecutive rises in interest rates by the Central Bank of Brazil (BCB), which has left its reference value at 13.75% and it is expected that there will be an additional rise in the coming months. .

Argentina, the other side

consulted by infobae, The experts Luis Palma Cane, Marcelo Elizondo Y gabriel zelpo agreed to highlight the measures adopted by Brazil to achieve this result, which would leave inflation for the year between 7 and 8 percent, compared to the 90-100 percent estimated for Argentina.

While the consultants predict that Brazil will end the year with an inflation rate of 8%, for Argentina an index is expected to be between 90 and 100 percent.

Tomorrow the Indec data for July will be known, although the consultants estimated that it will be around 7.5%, the highest rate in the last 3 decades, so it will have accumulated 45% since January and 70% in the last year.

Latinfocus expects Brazilian inflation to stand at 8% at the end of December, compared to 90% calculated by the consultants surveyed by the BCRA this month for Argentinaalthough some already anticipate that it will be around 100 percent.

The Central Bank of Argentina does not stop its issuance due to the high fiscal deficit.  REUTERS/Enrique Marcarian
The Central Bank of Argentina does not stop its issuance due to the high fiscal deficit. REUTERS/Enrique Marcarian

Marcelo Elizondo He said that the fall in prices is explained in Brazil “firstly by the rise in the interest rate and second, most importantly, by tax reductions, especially taxes that are made up of the rate of public services.”

“When you have a stable economy, the lowering of taxes is reflected in prices, with a tax reform, even with the reduction of tariffs on imports that it promoted, something that impacts Mercosur and that Argentina has not wanted to accompany. It is a systemic cost reduction process,” Elizondo said.

gabriel zelpo indicated that the main factor was “the temporary reduction in taxes on fuels and a deflation in industrial goods was also observed, related to the reduction in taxes on industrial products carried out by Bolsonaro and that is not temporary.”

“The other factor that is helping a lot is that the rains have improved this year and with that the production of hydroelectric dams and electricity bills. In summary, the improvement is due to the reduction of temporary taxes (fuels) and permanent taxes (taxes on industrial products)”, indicated Zelpo.

While, Luis Palma Cane He said that “by raising rates and lowering taxes, Brazil is doing what a country has to do when it wants to lower inflation, with a stabilization plan and reforms so that inflation can end the year close to the 7% that the bank wants. central, compared to the crazy indices of Argentina”, which is on its way to approaching the interannual inflation of Venezuela, well above the rest of Latin America.

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