Brazil goes to elections with lower unemployment and twice the inflation of 2018

Brazil is heading towards the October presidential election with lower unemployment and more job vacancies than in 2018, when the last election took place.

Accumulated inflation, however, has doubled since then, and real income from work has shrunk amid the impacts of the pandemic. This combination, say analysts, plays against the perception of an upturn in economic activity for a considerable portion of the population.

Comparing the Brazilian economy on the eve of the 2018 election with the current moment is like watching a roller coaster of expectations, says Cosmo Donato, senior economist at LCA Consultores. Four years ago, he says, the prospects were one of fiscal predictability, after the approval of the spending cap, the progress of the Social Security reform and a possible discussion of the tax reform.

“We were moving towards normality, reaping the benefits of the reforms that were carried out and with the expectation of doing more, but the environment has completely changed. We had a pandemic on this path and, in terms of fundamentals, we are in a more challenging scenario. of the short term brings good news, especially due to the end of sanitary restrictions and the fiscal and social impulse”, he summarizes.

In the quarter up to July this year, the most recent one with available data, the unemployment rate dropped to 9.1% in Brazil, according to the IBGE (Brazilian Institute of Geography and Statistics). The indicator stood at 12.4% in the same period of 2018 (3.3 percentage points above).

The number of unemployed – people out of work and looking for jobs – fell by around 3.2 million in that interval. It went from 13.1 million in the quarter to July 2018 to 9.9 million in the same period in 2022.

The number of people employed with some type of work, in turn, increased by 6.8 million, from 91.9 million to 98.7 million. The most recent level is the highest in the historical series started in 2012, according to the IBGE.

Inflation, on the other hand, started to bother Brazilians’ pockets more. In the 12 months through August 2022, the most recent interval with available data, the IPCA (Broad Consumer Price Index) accumulated a high of 8.73%. In the same period of 2018, the advance was 4.19%. That is, less than half.

According to economists, inflation has gained strength with the effects of the pandemic, which impacted the supply and prices of inputs, and the War in Ukraine, which raised commodity prices.

In Brazil, these factors were boosted by the rise in the dollar, which rose amid turmoil led by the Jair Bolsonaro (PL) government, candidate for reelection.

In part, inflation was responsible for reducing the average income of work in the country, points out economist Vitor Hugo Miro, professor at the Department of Agricultural Economics and coordinator of the Laboratory of Poverty Studies at UFC (Federal University of Ceará).

In the quarter through July 2022, the usual income, in real terms, was R$2,693. The mark is 3.8% lower than in the same quarter of 2018 (R$ 2,798). In practice, it is as if R$ 105 were, on average, not going to the pocket of the busy worker.

R$ 2,693 represents the second lowest value for the quarter through July in the historical series, according to the IBGE. They only exceed the income recorded in the same range of 2012 (R$ 2,685).

The calculations involve only the resources obtained from the work. Transfers from social programs, for example, do not enter the accounts.

“It has the component of wages, of jobs that are being generated with lower wages, and the inflationary issue, which has been eroding purchasing power. This scenario explains the lower income”, says Miro.

In relation to the immediately previous quarter (February to April), the average income even rose 2.9% in July this year. It was the first significant increase in two years, according to the IBGE.

“A positive factor in this pre-election period is that the average income from work is growing. We have not yet reached the levels of four years ago, but it is still a surprise”, says Hélio Zylberstajn, senior professor at FEA/USP and coordinator of the Salariometer Project, from Fipe.

Still, he recognizes that the average voter does not feel this improvement, especially due to higher inflation in 2022.

“Rising prices erode the purchasing power of wages. If we look at collective bargaining, workers are not managing to beat inflation — some can only break even with it. When you go to the supermarket, everything still seems too expensive. More jobs doesn’t mean more satisfaction.”

‘Polarized’ economy, says analyst

In the view of Silvia Matos, coordinator of the Macro Bulletin of FGV Ibre (Brazilian Institute of Economics of the Getulio Vargas Foundation), the scenario on the eve of the new election is of a “polarized” economy, similar to what happens in politics.

According to the economist, the country has made progress in recent years in areas such as concessions and regulatory frameworks. However, indicators such as fragile income and family indebtedness form the “sad side” of the story, says Matos.

In August, indebtedness hit a record, reaching 79% of households in the country, according to the CNC (National Confederation of Commerce in Goods, Services and Tourism). The historical series began in 2010.

“We have made some progress, but there is still a long way to go for a more sustainable economy. Several reforms were not continued, there is the issue of social inequality. With the pandemic, the poorest suffered more, not only in terms of income, but also in terms of education. “, assesses Matos.

For her, one of the country’s challenges in 2023 will be to reconcile measures to help the most vulnerable and an agenda of reforms and fiscal responsibility.

“We know that this is a moment that demands action from the State, which at the same time needs to be reformist. The question is to combine everything”, he says.

Economist Margarida Gutierrez, a professor at Coppead/UFRJ (Institute of Graduate Studies and Research in Administration at the Federal University of Rio de Janeiro), also draws attention to this point.

“The main very short-term challenge is to equate social programs with debt/GDP sustainability”, he points out. “You can’t put everything in the Budget and say ‘let’s go ahead'”, he adds.

In Gutierrez’s view, the economy showed a consistent reaction after the Covid-19 shock. It defines the current moment of activity as “very good”, at a higher level than in other countries.

In the second quarter of this year, GDP (Gross Domestic Product) grew 1.2% in Brazil. The rise, according to analysts, came in the wake of the reopening of companies and the release of resources authorized by the federal government.

Campaign speeches

Pressured by the loss of the population’s purchasing power, Bolsonaro bets in the second half of the year on cutting taxes on items such as fuel and electricity, in addition to expanding Auxílio Brasil on the eve of the elections.

The president has been highlighting these measures in his speeches. Bolsonaro’s opponents, such as former president Luiz Inácio Lula da Silva (PT), at the forefront of polls, seek to draw attention to issues such as the increase in hunger and poverty.

The 9th Inequality in Metropolis Bulletin, for example, indicated in August that the number of people in poverty jumped to 19.8 million in Brazilian metropolises in 2021. The country’s hungry population reached 33 million people, according to with another study published in June.

Economist Jackson Bittencourt, coordinator of the economic sciences course at PUCPR (Pontifical Catholic University of Paraná), believes that inflation remains one of the thorns in Brazilians’ shoes.

The recent IPCA truce, he says, was concentrated in fuels due to tax cuts. Food continues to weigh heavily on the pockets of the population, especially the poorest, he says. He recalls that, with the famine, the country experienced scenes of people looking for scraps to feed themselves.

“What the government did was a surgery on the IPCA. It attacked items such as fuel and electricity”, he compares. “For the turn of the year, the agenda is how to keep recovering jobs and reduce inflation.”