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Inflation in Brazil: relatively low, absolutely high [ClearOnMoney]
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Inflation in Brazil: relatively low, absolutely high

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Commentary

Inflation in Brazil: relatively low, absolutely high

6 Nov 2011 by Jim Fickett.

As part of a foundation for looking at the fundamental strength of Brazil's booming economy, we look here at inflation. Brazil experienced hyperinflation in the 80s and 90s. That was brought under control, but the more recent typical inflation rates of around 6% are still high in absolute terms.

It is unclear to what extent “emerging” economies are really healthier than “advanced” economies, and to what extent the good times in China, Brazil, and other countries are due to rather extreme expansions of credit.

Among emerging economies, I find Brazil most attractive (fairly strong and independent central bank; fantastic natural resources, including much farmland, water, and oil; fairly stable governmental institutions; a large middle class). Certainly the boom in Brazil is due at least in part to real advances, for example better monetary policy after a period of hyperinflation, and major advances in farming. But some part of the boom is also due to unsustainable credit expansion, both in China, to which exports have grown at very high rates, and at home, where credit to the household sector has been growing at something like 20% per year.

Over the next few months I hope to treat the boom in Brazil in some depth, in particular answering the question of whether the expansion in domestic household demand is solid progress, a bubble, or something in between.

As usual, we need a few really basic statistics to get started. Most accounts of credit growth are given in nominal amounts, so inflation is one of those basics.

Brazil experienced a hyperinflationary period in the 1980s and 1990s:

Note that even the “low” inflation at the beginning of the above chart is about 100%.

Inflation was eventually brought under control, and is now negligible compared to the historical hyperinflation. However it is still high when one is talking about a stable price environment for business, saving, and trust in government:

The simple messages from these charts are

  • Inflation is more or less under control
  • It is still high in absolute terms
  • When reading about interest rates, credit growth, etc, keep in mind that Brazilian inflation is typically in the neighborhood of 6%.

(For sources see the new Reference page Brazil inflation.)