Opinion – Vinicius Torres Freire: Food, oil and ore prices fall in the world, but inflation is alive

The real has once again become one of the most undervalued currencies in the world, whether in relation to a year or the beginning of the epidemic. Gone is the surprising improvement seen from January to April (dollar at R$ 4.76, on average in April, compared to R$ 5.41 in the last week). We took one of the trams of the near-world devaluation against the dollar, but we took the one that runs further downhill, almost as usual.

The difference now is that, as far as inflation is concerned, the result might not be so bad, on the one hand (the commodity price side). But inflationary pressure can come from elsewhere.

The price of relevant commodities, basic grains, sugar, iron and copper, meat and even oil, for example, began to fall at a pace that compensates for the high price of the dollar in Brazil. In reais, only the price of a barrel of oil is more expensive (much more expensive) than at the beginning of the year, for example. It’s good, but it’s bad: it’s fear or a sign of global recession.

This means that the inflation of products linked to these prices may rise less, there may be less pressure, so to speak. It doesn’t necessarily mean it will. Consumer prices do not depend solely on this factor. But a goat pushed a body part out of the room. Another part still stinks the environment.

First, it may be that the processing industry and commerce decide to recover margins: they decide to recover the extra they charge in addition to the costs they have, a margin that in many cases was flat or, more neutrally, smaller than expected or required by the owners. of business. In private conversation, one or another supermarket executive, for example, says something like that.

Margin recovery would be a plan, not a decision to be taken easily. It depends, for example, on the reaction of consumers at the checkout, so to speak. This reaction depends on what real disposable income will be in the coming months.

The average real income, the average salary discounted for inflation, still fell a lot until May, the latest available data, in relation to May of last year. But the situation could get worse.

Inflation will drop a notch because of government interventions: reduction of taxes on energy and fuel, mainly.

The nominal increase in the average salary has been increasing. In November of last year, for example, nothing grew (always compared to the same month of the previous year, in this case November 2020). The nominal increase has picked up pace since then. Now in May of this 2022, it was growing at 4.9% per year.

Yes, the average salary still lags behind inflation. The real gain is below zero, the IPCA rises more than the average salary. But the situation worsens.

Some economists go so far as to say that the unemployment rate, while horrible, is falling to the point where it no longer contributes to holding prices down (through wages). It sounds perverse, but that’s the point.

The fact is that nominal wages have grown at an accelerated rate since the end of 2021. Whether that will weigh on inflation, who knows. For the rest, it is necessary to know whether the economic slowdown predicted for the second half of the year will even end this decline in the average salary.

Third, we have the problem of inertia: higher inflation generates higher inflation through formal, informal indexation and preemptive readjustments because of high price expectations ahead.

Given the price reductions due to government interventions, the IPCA forecast for this year dropped from almost 9% to 7.5%. For next year, 2023, it has been rising and is already at 5.2%, far beyond the Central Bank’s target of 3.25%. Interest rates will remain high for a long time. More damn inheritance for 2023.