Hours of Buenos Aires | Heavily Indebted Brazilian Families and Inflation

Jussara Romero’s credit card is nearly depleted, and exorbitant interest payments have left her family struggling to survive.

Yet soaring prices in inflation-battered Brazil left little choice for the 37-year-old mom when she arrives at the cash register, she says: she often breaks the plastic again .

Many workers in Brazil have found themselves trapped in a vicious cycle of soaring prices and debt as Latin America’s largest economy is hit by high inflation, high interest rates and a recession.

Romero, who runs a private daycare, lives with her husband and baby in the economic capital, São Paulo.

She cut back wherever she could, she said, but barely made it.

“We buy the cheapest brands, we stopped driving the car to go to work, we no longer go out,” she told AFP.

Still, she found herself forced to use her credit card, which has an annual interest rate of 346.1%.

“I know putting things on the map makes everything more expensive in the end, but I don’t have a choice, that’s what’s helping me get through this right now,” she says.

Brazilians are recovering from an old problem: inflation, currently at 10.47% per year.

The price increases are far greater than for a wide range of commodities, including fuels (up 50 percent from January to November 2021) and poultry (up 22.9 percent).

Supply chain ravages and pandemic stimulus spending have fueled inflation around the world. But Brazil, which is haunted by memories of the hyperinflation of the ’80s and’ 90s, is undergoing a particularly traumatic adjustment.

Trying to control prices, the central bank undertook one of the most aggressive monetary tightening in the world, dropping the benchmark interest rate from 2% to 9.25% in less than a year.

But while inflation now appears to be slowing, rate hikes have made credit all the more expensive in Brazil and dampened an already sluggish economy.

Cascade effect

“Many families already spend most of their income on interest payments,” says Rachel de Sa, chief economist at investment brokerage firm Rico Investimentos.

The erosion of purchasing power has undermined household consumption, the main engine of the economy.

Inflation and high interest rates “have an impact above all on the consumption of durable goods, such as appliances and vehicles”, explains Fernanda Mansano, chief economist of the financial education site TC.

The pandemic-fueled recession is also eating into Brazilians’ incomes and job security.

Brazil’s average real income, after adjusting for inflation, is at its lowest since the record started in 2012: 2,449 reais (US $ 445) per month.

Unemployment has risen from a high of 14.9% at the start of last year to 12.1%, but more than 40% of Brazilian workers have jobs in the informal sector, usually without contracts or social protection.

Isaac Coelho, a bicycle delivery boy who lives in Embu das Artes, on the western outskirts of São Paulo, is one such worker.

“At least my delivery job allows me to cover some expenses, like the gas cylinder, which has gone from 60 reais in 2020 to 100 reais now,” he says.

Real estate loans inaccessible

Bruno, 35, who works in communications, lives with his father in the Lapa district of São Paulo while he searches for an apartment he can afford.

“My bank offered me a loan at 8.9% interest, but this rate is only valid for three months. If I can’t find an apartment by then, there’s no guarantee, ”says Bruno, who asked that his last name not be used.

Banks are still digesting the rapid rise in the benchmark interest rate, but already “mortgage rates have gone from 6.3% at the start of 2021 to around 10% today”, explains Rafael Scoledario, a specialist in the real estate market.

Forecasts for the Brazilian economy are grim for 2022, weighing on the already low popularity of far-right President Jair Bolsonaro as the October elections approach.

Analysts polled by the Central Bank are forecasting economic growth of 0.42% this year, down from the relatively bullish forecast of 2.5% a year ago.

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by Luján Scarpinelli, AFP

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