Politics

Brazil’s mid-month inflation down in July


Brazilian consumer prices rose by 0.13 percent in July, according to the IPCA-15 index — a mid-month inflation index which is a reliable predictor of the official rate. The result was the lowest monthly change since June 2020 and brought the 12-month rate down from 12.04 to 11.39 percent.

The results were kept low by a drop in the cost of transport (-1.08 percent) and housing (-0.78 percent), which reflect the government’s recent moves to tame energy prices through tax cuts. 

A good piece of news for President Jair Bolsonaro — who faces an uphill re-election battle against former President Luiz Inácio Lula da Silva — is the reductions in gasoline and ethanol prices, by 5 and 8.1 percent, respectively. 

While the price of gas isn’t exactly the best metric to understand the economy at large, the ubiquity of fuel and its direct impact on people’s monthly budgets make it an easy shorthand for the broader economic scenario.

And the recent easing in prices comes as consumer trust in the economy goes up, if only by a little. According to the Brazilian Institute of Economics at think tank Fundação Getulio Vargas, “there is an improvement in prospects for employment and the overall economy for the next few months.” 

Still, “the stimulus programs pushed by the government have not yet been able to reverse the bad perception around the economy among low-income families,” as economist Viviane Seda points out. 

Ms. Seda’s words are echoed by a recent poll, which shows a slight improvement in Mr. Bolsonaro’s numbers — but still not the swing he needs to threaten Lula’s election prospects.

Economists expect prices to ease in the next few months, but warn that the government’s costly anti-inflation measures are not sustainable and will generate a whiplash after the election. We explained these warnings in the latest Brazil Weekly newsletter.





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