Inflation breaks the target and closes 2021 at 10.06%, the highest since 2015

In 2021, the purchasing power of Brazilians was once again haunted by double-digit inflation. In the 12 months of last year, the IPCA (Broad Consumer Price Index) accumulated a variation of 10.06%.

The increase is the highest for the period from January to December since 2015 (10.67%), according to data released this Tuesday (11) by the IBGE (Brazilian Institute of Geography and Statistics).

The result came above financial market expectations. Analysts consulted by the Bloomberg agency projected a variation of 9.96% in the accumulated of 2021.

The IPCA is the official inflation indicator in the country. As a result, the index easily exceeded the target pursued by the BC (Central Bank).

The inflation target was 3.75% last year, with a tolerance of 1.5 percentage points up or down, reaching a maximum of 5.25%.

BC president Roberto Campos Neto will have to write a letter explaining the IPCA’s progress above the reference interval. It will be the sixth since the creation of the inflation targeting system in 1999.

The most recent letter was written by Campos Neto’s predecessor, Ilan Goldfajn, in January 2018. The text was related to 2017 inflation, but, at the time, the then BC president was justified by a result slightly lower than the established minimum limit.

Last year, the IPCA surge was driven by a combination of disparate factors.

There was a price rise in administered prices, such as fuel and electricity, an increase in basic items for families, such as food, including due to climate change that affected the planting and harvesting of different products, in addition to persistent disruption in the global supply chain of industrial inputs, especially chips.

In the monthly cut, the IPCA decelerated to 0.73% in December, informed the IBGE this Tuesday.

Analysts consulted by Bloomberg projected a variation of 0.64% on this basis of comparison. In November, the IPCA had risen 0.95%.

“Accumulated inflation in the range of 10% was not on anyone’s radar at the beginning of last year. It strayed from a normal pattern”, says Sergio Vale, chief economist at the MB Associados consultancy.

“Inflation still does not show signs of tranquility. The scenario is worrying at the beginning of 2022. It will not be easy to bring inflation back to the target”, he adds.

shocks in the pandemic

According to analysts, a succession of shocks seen over the past year are behind the rise in prices.

After misaligning global production chains, the pandemic continued to cause shortages of inputs on the international market in 2021. With the lack of raw materials and the reopening of the economy, prices became more expensive in different regions.

In Brazil, the pressure was intensified by the devaluation of the real against the dollar. The American currency rose amid political turmoil led by the Jair Bolsonaro (PL) government.

The high exchange rate also made fuel more expensive. This occurred because the dollar is taken into account by Petrobras when setting prices at refineries for items such as gasoline, which have great weight in the IPCA.

Brazilian inflation was still boosted by climate shocks last year. The severe water crisis that hit the country increased the costs of generating electricity and, as a consequence, the electricity bills of consumers. The drought, combined with the record of frost, also put pressure on food last year.

The general increase in prices penalizes the poorest in particular. Brazil started to have a succession of cases of people looking for donations and even food leftovers for food.

Ionara Jesus Santos, 40, resident of a community in the south of São Paulo, says that she went through 2021 suffering from the rise in the prices of basic items. Almost everything was getting more expensive. At the same time, she suffered loss of income.

Before the pandemic, Ionara worked as a day laborer. With the crisis, the opportunities disappeared. He cannot find work and seeks donations to feed his four children.

Today, the family income boils down to the BPC (Continued Benefit Benefit) received by the 21-year-old daughter, who had cerebral palsy, says the diarist. The benefit amount is a monthly minimum wage.

“It’s hard to see a hungry child and not have much to do. I’m depending on donations. Everything was expensive in the pandemic”, he says.

“I would like to have a job again, to have money to support my family. In the market, we cannot buy decent meat or rice, we always choose the cheapest”, he adds.

To try to contain the rise in prices, the BC has been raising the basic interest rate. The side effect of the higher Selic rate, currently at 9.25% per year, is to inhibit productive investments in the economy, as credit lines become more expensive. Lack of investment also tends to slow the generation of jobs and further delay the recovery.

“Higher inflation requires higher interest rates, which affects economic growth. It’s a cycle. That’s why inflation is so dangerous”, says the chief economist at Ourinvest bank, Fernanda Consorte.