Inflation will give relief to the poor and weigh more on the middle class, experts say – 03/15/2023 – Market

After severely punishing the poorest in the last three years, food inflation should give a break in 2023. and electricity) than in food.

In a debate promoted by Sheet and the Brazilian Institute of Economics of the Getulio Vargas Foundation, experts estimate that one of the priorities of the Lula government will be to maintain and improve social benefits for the poorest. Because, although at a slower rate of increase, food has already greatly reduced the purchasing power of this segment of the population.

According to André Braz, coordinator of the Ibre-FGV Consumer Price Index, food at home has skyrocketed by 45% in the last three years, for an accumulated official inflation of 22.8% in the period. For 2023, Braz estimates that food prices will increase by 3.7%, below the market expectation for the IPCA, of around 6%.

“But it is necessary to remember that wages are often corrected by the IPCA average, not by food inflation. Therefore, the loss of income of the poorest will take a long time to be replaced in relation to the past variation in food prices”, affirm.

Braz points out that other price indices, such as wholesale inflation, have been showing important decelerations, as well as durable goods, with an increase forecast between 3.5% and 4%.

“In 2023 there will be a certain inversion, with food leaving the focus, which will pass to administered prices, which affect the middle class more. The difference is that this group may be benefiting from high interest rates, as it normally has reserves in financial investments” , it says.

Silvia Matos, researcher and coordinator of the Macro Ibre-FGV Bulletin, says that, although there is some truce in food inflation, economic activity is also slowing down, which could lead to loss or stagnation of income for the poorest. In her estimate, the Brazilian economy should grow around 0.3% this year.

“Low activity will not lead to great gains for the poorest in the labor market, hence the importance of income transfer policies, which need to be increasingly improved, taking into account the profile of beneficiaries.”

Matos recalls that, since the pandemic, the volume of resources allocated to the current Bolsa Família (which became Emergency Aid and later Brazil Aid in the Bolsonaro government) went from 0.5% as a proportion of GDP to 1.5% currently.

For Daniela Campello, political scientist and professor at FGV-Ebape, the scenario of economic slowdown in 2023, despite the social benefits, could bring problems of popularity for President Lula and his relationship with Congress.

“This is a government that was elected with the proposal of improving the lives of the poorest, but with a very tight margin of votes and in a divided country”, says Campello.

“There is little room for a honeymoon, and the voter’s relationship with the economy does not consider external factors that may be affecting the country’s performance. They end up directly blaming the president”, he says.

Watch below the entirety of the meeting promoted by Folha and Ibre-FGV.