With debt and high inflation, Brazilians start 2022 burdened by the economy

Jussara Romero only sees red numbers: the elevated inflation in Brazil and complications derived from pandemic They force her to borrow nonstop, even though this becomes more and more expensive with rising interest rates.

Despite the fact that 2021 was anticipated as the year of economic recovery after the pandemic, the crisis is hitting Brazilians again, including the middle class.

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

For Jussara, who is dealing with new expenses and long-standing debts, that rise represents a new burden, without yet feeling the relief in inflation.

For example, chicken increased 22.9% between January and November, and diesel almost 50%.

“At home we change brands of products (cheaper), we stop going to work in the car and we suspend outings,” says this 37-year-old entrepreneur who runs a kindergarten and lives with her family in the southeast of Sao Paulo.

But he only got a break by putting off credit card commitments … until the next bill.

“I am concerned that paying in installments will make everything more expensive, but I have no alternative,” says Jussara, who even asked for a loan to cover part of her household and professional expenses and the interest she accumulates.

The average revolving credit rate to finance the card account climbed to 346.1% annually in November, after a rise of 18.3% in 2021.

Like Jussara, many Brazilian families resorted to this type of credit due to the loss of purchasing power, and “they are already dedicating a greater part of their income to cover interest,” explains Rachel de Sá, head of economics at Rico Investimentos.

Chain effect

Inflation, as well as the rise in the basic rate, are affecting consumption, the main engine of the Brazilian economy.

“The most expensive cost of money especially impacts the consumption of durable goods, such as household appliances and vehicles,” says Fernanda Mansano, chief economist of the TC financial education platform.

The demand for these generally financed goods fell 4.9% monthly in October.

Economic indicators reflect a broader deterioration: less demand for goods and services and weakened industrial activity, which eased 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, but with greater informality. Some 12.9 million Brazilians are unemployed and 38.2 million have informal jobs, out of a workforce of 106.9 million.

Isaac Coelho, resident of Embu das Artes, in the metropolitan area of ​​Sao Paulo, is part of the 40.7% of people with precarious jobs.

“Things were complicated at home by the pandemic and I had to go to work,” says the 18-year-old, who delivers orders on his bicycle.

The covid situation improved, with 67% of the population vaccinated, but the price escalation prevented him from leaving his job.

“It helps to cover some expenses, like the gas cylinder that paid 60 reais (about US $ 11) and now costs 100 reais (about US $ 18),” he says.

The weakness of the labor market is also reflected in the average real salary (without inflation), which fell to the lowest level since 2012, to 2,449 reais per month (US $ 445).

Own home, a complicated dream

Bruno, a 35-year-old from São Paulo who asked not to reveal his last name, 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 a loan will be granted at 8.9% per year,” says this communication professional who must complete the purchase in three months. “Afterwards, they no longer guarantee that rate,” he adds.

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

And it will worsen with a Selic to 11.5% in 2022, as the market projects, although in the end inflation would give way at the cost of economic cooling.

In any case, there is no one who predicts the end of the economic problems for this year of presidential elections, with a forecast of growth of the Gross Domestic Product (GDP) of only 0.42%.