Opinion – Vinicius Torres Freire: Inflation should drop here and abroad, but the price cat is peeking at the roof

World and Brazilian inflation should drop this year. At least, that was the expectation in late 2021. It still is, in fact, although the cat has climbed a step and is now glancing toward the roof.

In the second step of the famine cat, the effect of the omnitron variant on prices may appear. There or there, the new wave of the epidemic closes factories and congests ports, as in China, which has zero tolerance for the virus.

These are not major or lasting “lockdowns”, nor is there actually a systematic survey of the problem, just “anecdotal evidence”. But it must be remembered that one of the reasons for world inflation was the shortage of production, as in the already folkloric case of chips, and transoceanic transport.

Before I go on and to be more precise: the rate of inflation, the pace of general price increases, should be lower, here and elsewhere, but the price level, the current cost of things, is going to rise to stifling heights. Worse still in Brazil, as wages are not expected to increase in 2022. They are not likely to recover the ground lost to inflation in the next two or three years (if all goes well).

That said, there are signs of cooling off. The world food inflation rate is going down, judging by the FAO index, the Food and Agriculture Organization of the United Nations. The annual price increase was more than 40% in May 2021 and dropped to 23% last December. Still awful, but losing pace.

Inflation for oil products was partly due to prices rising above depressed 2020 levels and OPEC, the oil cartel, and its friends such as Russia tightening production. Furthermore, there was a supply crisis for other energy sources, such as natural gas, in addition to climate problems around the world.

In principle, there would not be another such big jump, experts say (last year, the barrel started at US$ 50 and reached US$ 86 in October). But forecasts for the price of oil are almost as flawed as estimates of the exchange rate (the “dollar price”), if only because such projections are subject to the misfortunes of international politics and other imponderables.

There are banks in the world talking about a barrel price in three digits, US$ 100 (now it is around US$ 80). The United States Energy Agency (EIA) predicts that, on average in 2022, the average price per barrel will be 5.5% higher than in 2021.

The 2021 inflation in Brazil was deadly because of the increase in oil products, electricity and food. The return of the rains and the expectation of a record harvest in Brazil could lend a hand to mitigate the rise in prices. But there will still be an increase in electricity this year; the record grain crop can go up on the roof, though it’s hardly a bad one.

The price of fuel may not go up astonishingly as in 2021, but who knows what will become of the barrel of oil and even less of the exchange rate, not least because “this is Bolsonaro, zorra!” and the year is of election. Misrule helped to devalue the real again; depending on the nonsense that presidential candidates say in the election campaign, the dollar may go even further. It will be difficult to see a relevant drop in the price of the American currency, which would depend on the inflow of money, which should continue abroad, waiting to see what happens in politics here.

The massacre of interest rates, the Central Bank and the wholesale money market, should bring down some of the inflation. But this will only be good because it is bad, as monetary tightening will keep the economy stagnant at best.