Among the vast range of topics studied by economic sciences, the most sensitive is undoubtedly inflation, at least for Brazilians. We don't need to look far to understand why; simply talking to anyone over forty years old will reveal harrowing accounts of people rushing to supermarkets after receiving their paychecks.
This was done in order to guarantee the purchasing power of their receivables – to be able to buy as many goods as possible with the money they possessed – before prices were adjusted by the "price tagger" at the establishments. With inflation in Brazil reaching an incredible 2500% per year in 1993, all this apprehension among Brazilians is justified, after all, it's only been 28 years.
Based on IBGE data, the inflation rate calculated for families earning up to 40 minimum wages (IPCA) was 2,04% in the first quarter of 2021, with the accumulated rate for the last twelve months at 6,10%. The inflation rate calculated for families earning up to 5 minimum wages (INPC) was 1,96% in those first 3 months, with the accumulated rate for the last 12 months at 6,94%.
Food inflation measured for families earning up to 5 minimum wages (INPC) in the first quarter of 2021 was 1,25%, with the accumulated rate over the last 12 months standing at 15%.
This difference in inflation calculations by income level is due to families with lower purchasing power spending larger proportions of their income on basic products such as food, housing, and transportation. This is related to the fact that we have a higher INPC (National Consumer Price Index) than the IPCA (Extended National Consumer Price Index) in the accumulated 12 months, and lower for the first quarter of 2021.
The explanation for this discrepancy involves a slowdown in the increase of food prices this year, something expected for the first quarters. But why then are people still so worried about food prices?
This is because we are still impacted by the large increase in these prices last year, caused by the devaluation of the real against the dollar – which increases exports of Brazilian commodities, reducing domestic supply – coupled with a decrease in activity in the domestic and foreign manufacturing sectors – due to health restrictions that reduced their supply – and the emergency aid, which gave a boost to the purchasing power of people economically affected by the pandemic and caused an increase in demand in the economy.
Finally, considering an example I heard last week, someone noticed the increase in soybean oil and pasta prices, mainly due to an increase in soybean and wheat exports, inputs for the production of these products. Soybean prices rose by about 80% in 2020, while wheat rose by about 40%. In the first quarter of 2021, soybeans saw an increase of about 13% and wheat of 5%.
Another important food item that significantly impacts the Brazilian food basket is meat. Beef prices increased by about 25% in 2020 and by about 10% in the first three months of 2021. For example, beef exports to China alone grew by 8% in March 2021 compared to the amount exported in March 2020.
And of course, we couldn't fail to mention what many consider an essential food on the Brazilian table: rice. Our favorite experienced a price increase of around 110% in 2020, while in the first quarter of 2021 there was a drop of approximately 7%. It is important to emphasize that the considerations made about soy, wheat, beef, and rice refer to the prices of these products as basic inputs, not the prices found on retail shelves.
For the remaining three quarters of 2021, we need to wait for the next chapters of this story. The new emergency aid, even though smaller, will put pressure on inflation in the coming months, albeit to a lesser extent, just as it will be lower than the emergency aid granted in 2020. With the recovery of the economy, after a drastic decrease in Covid-19 infections, we will see an increase in supply, converging towards equilibrium between supply and demand. An important point, and one that should never be overlooked when discussing macroeconomic conditions, is the approval of the so-called structural reforms that will make the Brazilian economy more productive and, consequently, lead to a less devalued real, resulting in a decrease in food inflation.
