University of São Paulo: Investment flight to the US contributes to high inflation in the country, says Paulo Feldmann

Brazilian inflation in 2021 ended the year as the highest since 2015, at 10.06%. The rate corresponds to almost double the target set for the year, 5.25%. For 2022, inflation is expected to remain high, albeit a little lower, with a forecast between 7% and 8%.

Paulo Feldmann, professor at the Faculty of Economics, Administration and Accounting (FEA)
Paulo Feldmann, professor at the Faculty of Economics, Administration and Accounting (FEA) at the University of São Paulo, comments on the situation in the country. According to the professor, the forecast is that, in 2022, the government will not be able to solve the problem of inflation. “There is a conjunction of negative factors on the horizon, all happening at the same time”, he says.

One of these factors is the flight of investments to the United States. Inflation in the country closed between 6.5% and 7%, due to an increase in interest rates motivated by the large growth in consumption.

These high interest rates, added to the security of investing in the country, intensified the migration of investments there, further strengthening the dollar and, consequently, devaluing the real, causing an increase in inflation. It is possible that the value of the dollar exceeds R$ 6.

The professor says that the greater volume of rains in recent times has increased the level of reservoirs and allowed the government to postpone the use of thermoelectric plants, which increases the cost of energy. This situation will allow some reduction in inflation.

Another factor that reduces inflation is that the price of commodities is not expected to grow much. This is because, according to Feldmann, the world, as a whole, imports fewer commodities . China, in particular, which last year bought almost a third of what Brazil sold abroad, shows a decrease in purchases of these items, as a result of the slowdown in the country’s growth rate imposed by the Chinese government.

The reduction in exports, which is bad for the Brazilian economy, ends up preventing large increases in commodity prices , holding back inflation. In addition to the problems with inflation, Feldmann highlights other problems faced by the country, such as unemployment, increased hunger and deindustrialization, also related to inflation.

Among the factors that harm the Brazilian economy are the high rates of unemployment and informal work, which result in a decrease in the population’s consumption. In addition to the departure of foreign investors from the country, Brazilian companies must also hold on to their investments, awaiting the outcome of the presidential elections, scheduled for the end of the year.

The population feels
For Feldmann, the impact that the population will suffer from high inflation is the worst of the problems. Among the complicating factors is the issue of Auxílio Brasil covering only a third of the number of families it should cover and the number of people covered by emergency aid. The situation intensifies the increase in hunger in the country, which is already reaching high levels.

“It is thought that 2022 will be a bad year, because adequate measures were not taken in 2021 to solve the problems”, he says, referring to problems such as hunger, poverty and unemployment.

Regarding unemployment, he highlights the lack of government policies to generate employment, supported by Minister Paulo Guedes’ position of not intervening in the economy.

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