Lula is already facing a drop in well-being among his voters – 02/24/2023 – Market

After the battery of criticism of the Central Bank, the inflation target and high interest rates, President Luiz Inácio Lula da Silva (PT) will enter his third month in office next week, with a deterioration in the perception of well-being among his main supporters.

Lula won the 2022 election mainly with the votes of the poorest (61% of voters in families with income of up to two minimum wages declared their vote for him the day before, according to Datafolha) and of the Northeast, where almost half of the poor in the country are concentrated. country, according to the IBGE. In the region, Lula beat Jair Bolsonaro (PL) by 69.3% to 30.7%.

Two indicators released this Friday (24) are bad news for Lula: the preview of inflation measured by the IPCA-15 came in above expectations, at 0.76% (compared to 0.55% in January); and the FGV-Ibre found a further drop in consumer confidence in February, especially among the poorest.

Overall, considering all income brackets, the indicator dropped 1.3 points in February, to 86.1 points. But, among lower income families (up to R$ 2,100/month), the drop was 3.3 points, to 84.4 points. It doesn’t help that the economy is slowing, with growth forecast of less than 1% this year, down from around 3% in 2022.

Most of the money of poor families is spent on food, transport and housing. The first two items are strongly influenced by international prices of agricultural commodities and oil.

In the three-year period 2020-2022, food inflation exceeded 45%, undermining the purchasing power of the poorest, especially those who could not be assisted by the Emergency Aid (now Bolsa Família) of R$ 600. of a new rise in food, between 8% and 9%.

With strong international influence, there is very little the government can do to contain food and fuel prices – remembering that taxes on gasoline have been suspended since last year.

The most appropriate line of attack would be to create a favorable climate for the dollar to fall against the real, making commodities in general cheaper internally. But, with the noise generated by Lula in recent weeks, the dollar is going in the opposite direction. After dropping to R$5 after the second round, it now systematically hovers around R$5.20.

In this context, the government promises to present a new fiscal framework in March to try to control the gross public debt, which should exceed the equivalent of 79% of GDP by the end of this year.

Depending on the credibility of the new instrument, essential for creditors to feel comfortable in continuing to lend to a government that is in deficit and more indebted than its emerging peers, the dollar could fall again.

Or not, becoming a haven for investors who don’t believe in the government’s plans – and further fueling the inflation of Lula’s clientele.