Inflation under Bolsonaro is nearly 27%, highest since Dilma 1

Inflation under Bolsonaro is nearly 27%, highest since Dilma 1

Official inflation in Brazil has accumulated a rise of 26.93% over the term of Jair Bolsonaro (PL), from 2019 to 2022, according to data from the IPCA (National Index of Consumer Prices).

This is the biggest increase in prices since the first government of Dilma Rousseff (PT). Inflation reached 27.03% from 2011 to 2014, the first four years of Dilma in the Presidency.

The IPCA is released by the IBGE (Brazilian Institute of Geography and Statistics), and the variations in each government were surveyed by economist Bruno Imaizumi, from LCA Consultores.

Imaizumi points out that the only reason why the IPCA did not rise more intensely under Bolsonaro was due to the tax cuts adopted by the former president on the eve of the 2022 elections.

Measures such as the ICMS ceiling (state tax) and the exemption of federal taxes reduced gasoline and electricity prices last year.

According to Imaizumi, the main factor responsible for inflation in the Bolsonaro government was the Covid-19 pandemic.

In this sense, the economist recalls that the health crisis interrupted and misaligned global production chains, generating a shortage of raw materials and cost pressures on companies.

The record of climate problems in Brazil and the War in Ukraine have also made food more expensive in recent years, adds Imaizumi.

“Inflation reached basic items for survival”, says the economist, in reference to the scarcity of food in the Bolsonaro era.

Food inflation mainly punishes poor families, who allocate, proportionally, a larger slice of their budget to purchase these products.

Economist Pedro Dutra Fonseca, professor at UFRGS (Federal University of Rio Grande do Sul), also assesses that the IPCA was pressured in the last presidential term due to issues such as the pandemic and climate shocks.

Fonseca still draws attention to the effect of the exchange rate at a high level, above R$ 5. The dollar advanced in moments of political tension led by Bolsonaro and pressured the cost of inputs.

“There was the pandemic part, the disorganization of production chains. There were internal issues, such as climatic factors, droughts”, says the professor. “The exchange rate part was under a lot of pressure”, he adds.

In Dilma’s first term (2011 to 2014), the country still experienced a period of heated economic activity with high public spending before the 2015 and 2016 crisis, points out Imaizumi.

According to him, the policies adopted at the time ended up boosting demand, even artificially. This demand, he concludes, contributed to the IPCA having accumulated a rise of 27.03% over the first four years of the former president’s government.

“There was a period when the economy was still booming, with heated demand generating inflation. It was a government marked by public spending.”

Economist André Perfeito also considers that the heated demand before the recession contributed to the rise in prices at the time. “This brought greater persistence to inflation.”

In the following four years, from 2015 to 2018, when Brazil had two presidents, Dilma and Michel Temer (MDB), the accumulated IPCA slowed down to 25.64%.

However, before the impeachment of the former president, confirmed in 2016, the official index was still pressured by administered prices, such as energy and gasoline.

In parallel, the pre-impeachment political turbulence affected the exchange rate. In 2015 alone, the IPCA accumulated an increase of 10.67%, the highest since 2002.

Inflation eased during the Temer government, reaching 2.95% in 2017. That year, there was a drop in food prices in a scenario of greater supply with good harvest conditions.

Part of the analysts consider that the low economic growth after the recession was not able to generate a great impetus for the demand for goods and services in the Temer government. Without such a heated demand, prices tend not to rise so much.

“The weak activity had an impact on lower inflation”, evaluates Perfect.

Since the implementation of the Real Plan, in 1994, the first term of Fernando Henrique Cardoso (PSDB), from 1995 to 1998, was the one with the highest accumulated IPCA. The index reached 43.46% in these four years.

In FHC’s second term, from 1999 to 2002, the rate slowed down to 39.88%.

According to economists, the increases can be interpreted as an aftermath of the period of hyperinflation in Brazil, left behind after the Real Plan.

“We were still fighting what we had not been able to fight before. It is expected that these variations [nos governos FHC] bigger”, evaluates Imaizumi.

Another factor to explain the more intense inflation at the time, say economists, is the record of turmoil coming from the external scenario.

“A part of the inflation was inherited [do período de hiperinflação]and there was also the conjuncture of the time”, says Fonseca.

In the two following mandates, both under Luiz Inácio Lula da Silva (PT), the accumulated IPCA continued on a downward trajectory. The rate was 28.20% in the period from 2003 to 2006 and 22.21% from 2007 to 2010.

One of the reasons for this movement, according to analysts, is the dollar truce, which had jumped in 2002 due to investors’ fear of Lula’s chance of winning in the elections.

“The first Lula government began with a very strong exchange rate shock, which was later partially resolved with Henrique Meirelles [ex-presidente do BC] raising interest rates”, says Perfect.

The improvement in investor expectations during the PT administration also helped in this process.

“There was uncertainty about what the Lula government would be like [a partir de 2003]. Lula took over with the devalued real. With the policy made by the government, more orthodox, there was a gradual drop in the exchange rate”, evaluates Fonseca.

In 2023, Lula assumed his third term with inflation still pressured by items such as food. Investors in the financial market have already shown fear of possible spending by the new government.

In a scenario of fiscal uncertainties, the expected rise for the 2023 IPCA rose from 5.31% to 5.36%, according to the most recent edition of the Focus bulletin, released by BC (Central Bank) on Monday (9).

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