After all, why does inflation continue to rise in Brazil and in the world?

Last year was marked by the jump in inflation in Brazil and in several countries around the world. In early 2022, some factors indicate that the index will continue to be under pressure.

The climate of international tension caused by the conflict between Russia and Ukraine, together with uncertainties in the economy and politics, will be relevant to continue driving inflation at least in the first quarter.

It is important to emphasize that the scenario does not only affect the pockets of citizens of less developed countries. In the United States, for example, the inflation rate has already reached 7% in 2021, the highest level since 1982.

Among eurozone members, the index reached 5% last year, the highest rate since the currency was adopted on the European continent. Understand what motivated this new trend in the global economy.

Reopening of economies x inflation

With the reopening of economies after the most critical period of Covid-19, various energy sources that supply various sectors of industry have become more expensive. The international price of a barrel of oil, for example, has been four times higher since the beginning of the pandemic.

With the barrel close to reaching US$ 90, Petrobras has already confirmed a new readjustment in the value of fuels, which will have an even greater impact on the budget of Brazilians in the coming weeks.

Another factor that also pressured the jump in inflation was the bottleneck in production chains around the world. The sudden increase in global demand as economies resumed operations only reinforced the scarcity of imported inputs and goods. Especially in China, one of the countries that continues to adopt strict lockdown policies in its industrial and port areas to contain new outbreaks of Covid-19.

The effect snowballed the market. Industrialized products became more expensive and locked in Chinese ports. Freights, in turn, also rose sharply.

What does the Central Bank say?

100 and 200 reais banknotes
Inflation is expected to halve in 2022, says Focus bulletin. Image: Rafastockbr/Shutterstock

According to Roberto Campos Neto, president of the Central Bank, Brazil will face new internal challenges to try to contain the advance of inflation in the first months of 2022. Currently, the main ones are: the drought in the South and the floods, which affected the state of Minas Gerais and the Northeast region. The energy crisis amid the devaluation of the real will also contribute to keeping inflation high.

“Inflation in 12 months is close to peak, but we still see rising oil prices and highs caused by weather problems. Regions of the country with a lot of rain or drought have already had their harvest damaged, and this affects the price of food”, commented Campos Neto.

The good news is: after reaching 10.06% in 2021 (the highest level since 2015), the IPCA (official inflation according to the National Broad Consumer Price Index) may fall by half in 2022. Focus bulletin, a survey carried out with several financial institutions by the BC. The report indicates that inflation is expected to be around 5.15% this year.

Last year, Campos Neto even released a letter to justify the burst of inflation in the country. In the document, the current president of the BC attributes the bad result to the pandemic and the water crisis, which reduced the level of reservoirs, as well as the increase in the price of various commodities, such as fruits, vegetables and cereals.

A practical example was the drought in the central-south region seen in 2021, which damaged corn and sugarcane crops. As it is used to feed cattle, the most expensive corn influences the price of beef. The reduction in the sugarcane harvest directly affects the price of gasoline (which in Brazil contains 27% ethanol in its composition). The frosts recorded in 2021 also impacted the price of coffee, which has already increased by 46% in the last semester alone.

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What to Expect from Inflation in 2022

Political uncertainties and increased spending this election year will also influence the rate of inflation. This is what Gilberto Braga, economics professor at Ibmec points out.

“The fact that this is an election year increases the pressure for more public spending, several categories of public servants are pressing for readjustments, not to mention that the Ministry of Economy ceded part of the management of the Budget to the Civil House. This generates an unpredictability that delays investments, the generation of jobs and discourages entrepreneurship”.

Finally, according to Braga, inflation should really start to fall in the second quarter due to a new interest rate adjustment. "Inflation should fall due to responses to higher interest rates still expected for the beginning of 2022. The indices should start to fall in the middle of the year, but remaining around 5%".

With information from Agência Brasil .

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The post After all, why does inflation continue to rise in Brazil and in the world? appeared first on Digital Look.

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