US inflation will affect our economy and elections

Posted on 01/30/2022 06:00

Inflation in the United States The election, which will further complicate the life of President Jair Bolsanaro, will have a major impact on the Brazilian economy. But that is not the only problem for the current government. Whoever wins the election will have to face a new reality that calls into question traditional strategies for resuming growth.

Let’s do it step by step. Last year, US inflation reached 7%, the highest level since 1982 according to the Consumer Price Index (CPI). For that reason, economists have forecast four-quarter interest rate hikes, based on reports from Federal Reserve Chairman Jerome Powell. During infections, the ratio was close to zero.

The main reason for the increase in prices in the United States is not very different from what is happening in Brazil and other countries: the increase in production costs due to the rise in prices of basic inputs, especially oil, which reached US $ 80. Barrel. Logistics disruption caused by the global health crisis is another cause, now exacerbated by the rapid spread of the omigran variant of Govit-19; Labor shortage, which raises wages; And heating up the economy with a policy of fiscal expansion, in which the government distributed vouchers to the people and pumped money into the public securities market.

It was a two-year “loose” monetary and monetary policy that created inflation and spread around the world. In addition, it is a form of global demand smuggling by the United States, which makes products more expensive. Now, with the change in monetary policy announced by the central bank, the rise in interest rates should attract more investment and attract resources from emerging markets, including Brazil.

As inflation in Brazil gets out of control, the central bank (BC) interest rates will be the only reason to keep prices rising, and the Bolsanaro government will not respect the so-called spending ceiling. But, contrary to what is happening in the United States, due to political uncertainty, interest rate hikes will not have the same impact on attracting investments. The debate over economic growth and inflation control will be tainted by election promises, many of which remain unfulfilled, leaving everything after the October election.

The more the opposition attacks the government due to inflation, recession and unemployment, the more Polsaro seeks to manipulate the economy and expand the government’s social spending, which faces the country’s greatest health crisis and massive unemployment – but the federal machine’s costs and waste and corporate concessions, especially support it Without proper measures to control. The positive revenue increase caused by inflation has a toxic effect on spending.

Adverse situation

One of the characteristics of Bolsanaro is his difficulty in dealing with the new coincidences of his government. He was chosen by luck rather than his virtues, but, as Machiavelli says, faced with adverse circumstances, fortune receded, and now, he lacks the virtues necessary to remain in power. For example, he himself aggravated some of the issues, such as the health crisis.

Returning to the starting point, the impact of higher interest rates on our economy is a variation that is not under Bolsonaro’s control – that is, it could be added to the list of bad luck. Earlier this year its strategy was all about mitigating the effects of the social crisis, with Axilio replacing Brazil, the Bolsa Familia and the recent 33% increase in teachers, mainly governors and mayors, to be paid. .

The problem is that inflation and recession threaten to undo the effects of these measures during the election process.

And the opposition? Opposition candidates have stated they will not run in the by-elections, especially former President Luiz Inacio Lula da Silva. However, in the electoral debate, they need to position themselves on the new state of the economy.

Lula, for example, was elected in 2002 by the successful Plano Real after a financial transformation by Fernando Henrique Cardoso. During his first term, he maintained the foundations of this policy and successfully implemented the policy of combating poverty. Second, the population benefited from the so-called bonus and the strong expansion of the world economy, which was strengthened by China, which promoted a strong growth cycle, which was only interrupted by the government of Dilma Rousseff.

The state of the economy is completely different, and there are new challenges for Lula and other opposition candidates. Ciro Gomes (PDT), Sergio Moro (Podemos), João Doria (PSDB), Simone Tebet (MDB), Alessandro Vieira (Citizenship) and André Janones (Avante) challenge the discussion of sustainable development and alternatives to the struggle against inequality with Bolsanaro. And Lula.