With debts and high inflation, Brazilians start 2022 anguished with the economy

Jussara Romero only sees numbers in the red: high inflation in Brazil and the complications resulting from the pandemic forced her to take on more and more debt, although this becomes increasingly expensive with rising interest rates.

Although 2021 is anticipated as the year of economic recovery after the pandemic, the crisis is again punishing Brazilians, including the middle class.

Of particular concern is inflation of 10.74% in the 12 months through November, which has eroded purchasing power. To contain it, the Central Bank increased the basic interest rate, the Selic, from 2% to 9.25% between March and December, dragging down other market rates.

For Jussara, who deals with expenses and debts in arrears, this increase represents an extra burden, without yet being reflected in the alleviation of inflation.

Chicken, for example, increased 22.9% between January and November, and diesel, almost 50%.

“At home, we change product brands, we stop going to work by car and we suspend outings”, tells AFP this 37-year-old entrepreneur, who runs a daycare center and lives with her family in southeastern São Paulo.

But she only got relief by postponing credit card payments…until the next bill.

“I’m worried that with installment payments everything will be more expensive, but I have no alternative,” Jussara, who even asked for a credit to cover part of her household expenses and the interest she accrues, tells AFP.

The average rate of revolving credit to finance the card soared in November to 346.1% per year, after an increase of 18.3% in 2021.

Like Jussara, many Brazilian families resorted to this type of credit in the face of the loss of purchasing power and “a greater part of the families’ income is already dedicated to covering interest”, explains Rachel de Sá, head of economics at Rico Investimentos.

Cascade effect

Inflation, as well as the increase in the basic interest rate, are affecting consumption, the main driver of the Brazilian economy.

“The cost of more expensive money impacts, above all, on the consumption of durable goods, such as appliances and vehicles”, says Fernanda Mansano, chief economist at the financial education platform TC.

The demand for these goods, generally financed, dropped 4.9% per month in October.

Economic indicators reflect a broader deterioration: less demand for goods and services and weak industrial activity, which retreated in October for the fifth consecutive month, multiplying concerns about a slowly recovering labor market, warns Mansano.

The unemployment rate fell to 12.1% in the August-October quarter compared to the previous one, but with greater informality. About 12.9 million Brazilians are unemployed and 38.2 million work informally in a labor force that totals 106.9 million.

Isaac Coelho, a resident of Embu das Artes, in the metropolitan region of São Paulo, is part of the 40.7% with precarious jobs.

“Things got tight here at home because of the pandemic and I had to go out to work”, says the 18-year-old, an app delivery guy.

The Covid-19 situation has improved, with 67% of the population vaccinated, but escalating prices have prevented him from quitting his job.

“You can make a good little money, but it gets tired. You can cover some expenses like the gas cylinder, which was R$ 50, R$ 60, and now it has reached R$ 100”, he says.

The fragility of the labor market is also reflected in the real average remuneration (without inflation), which fell to the lowest level since 2012, at R$ 2,449 per month.

Own home, a complicated dream

Bruno, a 35-year-old from São Paulo who asked not to be named, is looking for an apartment to leave his father’s house in the Lapa neighborhood.

“I asked the bank for a financing letter, where it says that it will grant a credit at 8.9% per year”, says this communication professional, who must complete the purchase in three months. “Then, they no longer guarantee that rate”, he continues.

Although the banks have not yet transferred the entire increase in the Selic rate, according to real estate market specialist Rafael Scodelario, “the real estate financing rate increased from 6.3% per year at the beginning of the year to around 10%”, the which reduced the purchasing potential.

And it will get worse with an 11.5% Selic in 2022, as the market predicts, although in the end inflation will give in at the expense of the slowdown in the economy.

In any case, no one predicts the end of the economic problems for this year’s presidential elections, with a GDP growth forecast of just 0.42%.