Brazilians Feel Inflation's Squeeze
40 PERCENT MONTHLY RATE
SAO PAULO, BRAZIL — A YEAR ago Benedito Garcia de Lima paid four cruzados for beeswax to polish shoes. When the price recently rose to 15 cruzados, Mr. Garcia called the government agency responsible for investigating price gouging. ``But no one answered the phone,'' he says. Until recently few people even bothered to call. Although Brazilians had been concerned about inflation, they were also insulated from it since wages rose at nearly the same pace. To most, the important issue was the continued growth of the economy.
However, in November prices rose 40 percent. December's rise is expected to be closer to 50 percent. Some economists believe the inflation rate might be even higher, since they suspect the government of under-reporting the increases.
An indication that the financial markets are growing concerned about inflation came last week when the government paid a monthly interest rate of 62 percent to refinance part of its mounting debt. The high rate indicates ``the inflation rate is far too high,'' says Henrique Simonsen, a former finance minister.
At the same time, the Brazilian cruzado has been dropping more quickly in value. Last Thursday banks gave tourists 15 cruzados per dollar. Only two days earlier tourists received 13 cruzados. ``Who wants to hold cruzados?'' asks Mr. Simonsen.
Bankers say the business community is already moving its assets from government securities to tangible goods. ``Companies are buying machinery even if they don't need it,'' one United States banker says. ``They're making money buying things instead of selling them.''
If this shift continues, Brazil will enter the quicksand of hyperinflation, where its currency has little value. This has happened recently in Peru and Argentina, where hard goods have more value than money.
For a year Brazilians have been warned that hyperinflation was likely. An official of the International Monetary Fund says the government's success at insulating the ordinary Brazilian from inflation has prevented a general flight from the cruzado - so far. But with the pace of inflation increasing faster than indexes can rise, the risk is increasing.
The constant price increases have made Brazilians into sharp money managers. Elias Bueno, a lawyer, shows a visitor his checking account statement. He keeps a balance no higher than five cruzados. Instead, his assets are invested in a short-term money market fund which returns 63.5 percent a month, or in a mutual fund which yields about the same.
Even Mr. Garcia, the shoeshine man, keeps his money invested in high-yield accounts. He produces his savings passbook. ``Look, I started with 7,000 cruzados. I am making 41.5 percent interest.'' So far he has earned 4,000 cruzados in interest.
Brazilians are no fools when it comes to what these high rates mean. Says one women, ``at least you don't lose money.''
To avoid using cash, Brazilians write checks. A Brazilian journalist uses checks for groceries, restaurants, magazines, taxis, and gasoline. Brazilians are constantly in line at banks moving funds from account to account. In the latest marketing twist, some banks allow customers to transfer funds by phone. Because of computerization, checks clear within 24 hours no matter where in the country they are used.
Merchants have also honed their money management skills. Almost every store gives a 30 to 40 percent discount for purchases by check or cash. This amounts to a penalty for credit card use.
Business has adapted as well. At General Motors, managers have weekly meetings with suppliers to adjust prices. At the end of the month, GM meets with the government to justify its own price hike. Wages are increased every three months to reflect inflation. ``It is a learning experience all the time,'' says Henrique Sanchez, a senior adviser for GM.
Despite the government's attempt to index almost everything, there are lags. Such delays are having an impact.
At a department store, Antonio Silvana Lapina Cortiz, who works for the municipal sewage company, says he and his wife are cutting back on their consumption. They are not buying as much clothing. They don't keep food around for unexpected guests.
A thin Santa Claus jokingly says inflation has reduced his waistline as well. Then he points to a line of mothers with children, ``they now buy Christmas presents like clothing instead of things to have fun with.''
Parents, in fact, find unique ways to teach their children about inflation. Stella Barison, a librarian, found a box of medicine with seven layers of price stickers. ``I showed it to the children and then threw it in the trash,'' she recounts.
Many people complain that the inflation rate destroys their ability to gauge value. Comparison shopping is difficult. ``You have no notion of prices,'' says ex-finance minister Simonsen.
Although the middle class is somewhat protected by indexed bank accounts and salaries, the effect of inflation on the poor is dramatic. A street sweeper, Teresinha Lima da Silva, has no bank account. She rents what she describes as a ``bad house'' where the landlord now wants to raise the rent to 1,000 cruzados per month. She only nets 1,377 cruzados per month. She counts on her 15-year-old son for income. He makes 557 cruzados by selling newspapers. Inflation absorbs her income and she complains, ``we don't have enough money for clothes.''
But at least Ms. da Silva has a roof over her head. Helson Jurencio de Oliveira, his wife, and son separate trash. The waste paper they find will be recycled. But they don't make enough to pay rent. They sleep under an awning on the street.
Two weeks ago Mr. de Oliveira's family could get a plate of rice and beans for 4.4 cruzados each. Suddenly, the price shot up to 12 cruzados.
With this price increase, he says, ``We don't even have the money for a cup of coffee.''