Brazil Takes Steps to Try to Contain Rampant Inflation

With inflation rising at the rate of 36% a month, the Brazilian government and key industries put measures into effect Friday limiting wholesale price rises to 90% of monthly cost-of-living increases.

The measures are aimed at preventing a feared explosion of hyperinflation as Brazil approaches presidential elections and a change of government.

Agreement on the measures was reached by government and industrial leaders in a series of meetings that ended Thursday. Starting Friday, prices covered by the agreement may go up automatically no more than once a month and by no more than 90% of the latest monthly increase in the cost of living index.

‘A Greater Good’

Manufacturers seeking additional increases must request the approval of special new “sectoral chambers” made up of representatives of government and industry.

The new rules will also apply to goods and services produced by government enterprises, including electricity, gasoline and oil. Officials estimated that the agreement covers 50% of the country’s production, and they predicted that other private industries will join if the program proves successful.

“I have no doubt that the other sectors will join in, because a greater good is at stake,” Paulo Cesar Ximenes, secretary general of the Finance Ministry, said in a television interview Friday.

Private industries now covered include food, packaging, chemicals, hygiene and cleaning materials. Prices of some other products, including bread and milk, are already controlled by the government.

A major inflationary element still free of controls is interest rates. Officials and industrial leaders plan further meetings to discuss possible controls for interest rates charged by producers on installment payments for wholesale goods.

Brazil’s year-old constitution limits real interest rates, after adjustment for inflation, to 12% a year, but the government has postponed enforcement of the provision until Congress passes enabling legislation. Meanwhile, some interest rates are expected to reach 7% a month by the end of October.

Circle of Expectations

High interest rates on Brazil’s $130-billion public debt are blamed for inflationary deficits in the government budget.

However, officials and some economists say the main reason for the high inflation is a widespread expectation that the cost of living will continue to rise. They say this leads to financial speculation, which raises the price of gold and black-market dollars, adding to inflationary expectations. Prices, interest and other rates are often increased accordingly.