Brazilian families slammed by debt, inflation

SAO PAULO: Jussara Romero’s credit card is nearly maxed out, and the sky-high interest payments have left her family struggling to get by.

Still, inflation-battered Brazil’s soaring prices have left the 37-year-old mom little choice when she gets to the cash register, she says: she often breaks out the plastic yet again.

Many workers in Brazil have found themselves trapped in a vicious circle of soaring prices and soaring debt as Latin America’s biggest economy is hit by high inflation, high interest rates and recession.

Romero, who runs a private daycare center, lives with her husband and baby in the economic capital, Sao Paulo.

She has cut back everywhere she can, she says, but is barely getting by.

“We buy the cheapest brands, we stopped driving the car to work, we don’t go out anymore,” she told AFP.

Still, she has found herself forced to use her credit card, which has an annual interest rate of 346.1 per cent.

“I know putting things on the card just makes everything more expensive in the end, but I don’t have a choice, it’s what’s helping me get through right now,” she says.

Brazilians are reeling again from an old problem: inflation, currently at 10.47 per cent per year.

Price increases are much higher than that for a wide range of products, including fuel (up 50 per cent from January to November 2021) and poultry (up 22.9 per cent).

Supply chain havoc and pandemic stimulus spending have fueled inflation worldwide. But Brazil, which is haunted by the memory of hyperinflation in the 1980s and 90s, is suffering a particularly traumatic adjustment.

Trying to rein in prices, the central bank has gone on one of the most aggressive monetary policy tightening drives in the world, raising the benchmark interest rate from two per cent to 9.25 per cent in less than a year.

But while inflation now appears to be slowing, the rate increases have made credit all the more expensive in Brazil and slammed the brakes on an already slow economy.

Cascade effect

“Many families are already spending most of their income on interest payments,” says Rachel de Sa, chief economist at investment brokerage Rico Investimentos.

Eroding purchasing power has meanwhile undercut household consumption, the main engine of the economy.

High inflation and interest rates “are having an impact above all on the consumption of durable goods, such as appliances and vehicles,” says Fernanda Mansano, chief economist for financial education site TC.

The pandemic-fueled recession is also eating away at Brazilians’ incomes and job security.

Brazil’s average real income, controlling for inflation, is at its lowest since records began in 2012: 2,449 reais ($445) a month.

Unemployment has fallen from a high of 14.9 per cent early last year to 12.1 per cent, but more than 40 per cent of Brazilian workers have jobs in the informal sector, generally with no contract or social protections.

Isaac Coelho, a bicycle delivery rider who lives in Embu das Artes, on the western outskirts of Sao Paulo, is one such worker.

“At least my delivery job lets me cover some expenses, like the gas canister, which has gone from 60 reais in 2020 to 100 reais now,” he says.

Home loans inaccessible

Bruno, a 35-year-old who works in communications, is living at his father’s home in Sao Paulo’s Lapa neighborhood while he looks for an apartment he can afford.

“My bank offered me a loan at 8.9 per cent interest, but that rate’s only valid for three months. If I can’t find an apartment by then, there’s no guarantee,” says Bruno, who asked his last name not be used.

Banks are still digesting the rapid rise of the benchmark interest rate, but already “real-estate lending rates have gone from 6.3 per cent in early 2021 to around 10 per cent today,” says Rafael Scoledario, a real-estate market specialist.

Forecasts for Brazil’s economy are gloomy for 2022, weighing down far-right President Jair Bolsonaro’s already low popularity heading into elections in October.

Analysts polled by the central bank are predicting economic growth of 0.42 per cent this year, down from a comparatively rosy forecast of 2.5 per cent a year ago.

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