Brazil Inflation Soars as Sarney’s Policies Fade

Brazilian President Jose Sarney’s year-old program for tying down prices has come unraveled, and Brazilian inflation is galloping again at a triple-digit rate.

Officials say the cost of living rocketed by as much as 17% in January. If compounded over 12 months, that would make a yearly rate of more than 650%.

Price increases announced this week are expected to push the monthly rate even higher for February.

Officials say that the surge of inflation will be temporary.

Expected to Drop

“We will have two or three months of high corrective inflation, but later we will come down to a lesser level,” Finance Minister Dilson Funaro told reporters.

But a foreign diplomat warned privately: “They are going into hyperinflation if they don’t do something, and they don’t do anything. They just talk.”

In February of 1986, when the cost of living was rising at an annual rate of 500%, Sarney abruptly introduced what he called his “Cruzado Plan,” which froze most consumer prices and stopped inflation in its tracks. The plan also chopped three zeros off the Brazilian currency and changed its name from the cruzeiro to the cruzado.

From February through November, accumulated inflation officially reached little more than 10%.

Stability, Buying Boom

The relative price stability fed a buying boom that led to widespread shortages in consumer goods. Soon some industries were unable to meet increased demand, and others held back production, complaining that prices were too low.

In November, Sarney ordered an initial series of price increases. Angry public reaction included a riot in Brasilia, the national capital, but more price increases were authorized in December and January.

This week, the government announced the most extensive round of increases yet, ranging from 20% for macaroni to 60% for eggs.

Price controls for most “non-essential” goods were eliminated completely, but the government said “abuses” will not be sanctioned.

Interest Rates Soar

Interest rates, reflecting expectations for future inflation levels, have soared to more than 500% a year.

The government’s wage policy calls for a worker pay increase to be triggered by every increment of 20% in the cost of living since February of 1986. The first “trigger” was reached at the end of December.

Officials now are talking about returning to the practice of indexing, which automatically ties wages, rents, mortgage payments and the like to the cost-of-living index. Many economists have said that in the past, indexing helped perpetuate inflation.

Deficit Spending Blamed

The newspaper O Globo said in a recent editorial that a major cause of inflation is deficit spending by the government.

“The severe containment of those expenditures is the orthodox cure that needs to be applied to inflation,” the newspaper said.

President Sarney, a civilian who took office in April, 1985, after 21 years of military government in Brazil, says the best way to control the cost of living is a “social pact” that would commit industry, labor and the government to an anti-inflationary plan.