For the first time, American inflation surpasses that of Brazil. Where the US went wrong

American interannual inflation (Consumer Price Index – CPI), which stands at 8.2%, exceeds Brazilian inflation (Consumer Price Index – IPCA), currently at 7,17%, according to Trading Economics and Austin Rating. Experts point out that one of the main reasons for this historic economic overshoot was the anticipation of the Central Bank of Brazil to the global inflationary phenomenon, resulting from the Covid pandemic-19 and the war in Ukraine, while the central bank of the United States (Federal Reserve System – Fed) was reluctant to raise interest rates to control inflation.

In addition In addition, while Brazil controlled spending, even making the payment of emergency aid, the United States went beyond the point by injecting more money into the economy. Now, the bill has arrived: it is the highest inflation in 40 years.

Nelson Souza Neto, law professor at UniCuritiba and with a master’s degree in economic law, he compared the measures taken by the two countries. “On the US side, the excess of monetary stimulus – the weekly checks sent in the mail to American families, the extraordinary increase in the M2 monetary aggregate, which is the fruit of the uncontrolled printing of money by the Fed, and the Fed’s reluctance to start the process of interest rate increases resulted in the inevitable inflationary process that we see today”, described the professor.

On the other hand, the Central Bank of Brazil raised the basic interest rate of the economy before the inflationary phenomenon global, containing the price spike. “Prices have gone up, but much less than in the rest of the world”, analyzed Neto.

Guilherme Moura, professor of economics at Universidade Positivo and PhD in economic development, highlighted that this is “the result Americans’ economic and social choice. Especially, from the large injection of money to keep the economy going, but that went beyond the point.

The lockdown periods during the pandemic led to a decrease in production and the consequent increase in demand, which resulted in in rising prices. The expansionist choice of the US government ended up aggravating this rise in prices, generating inflationary pressure. It made the Fed finally resort, after long resistance, to adjustments in the basic interest rate. “The United States and Europe were a little late in this rate hike, but they are now using the standard response,” Moura pointed out.

The Fed’s monetary tightening was an increase in its rates from zero. , in March, to more than 3% in September. This change has not yet produced major effects on the rise in prices.

Insistence of inflation and risk of recession

“Today, in the United States, there is a insistence of inflation, although it is now slightly lower than in June, for example, when it reached a 9.1% annual increase”, analyzed Alan da Fonseca, director of operations at Grupo Integrado de Campo Mourão and master in administration and finance.

He highlighted the rise in food prices, which last month grew by 0.8%, in addition to an increase in the costs of accommodation, medical care, natural gas and electricity.

For Jason Furman, Harvard economist and former economic adviser to Barack Obama, the peak of inflation may have been reached this month. He recalled that the road is long to find the ideal rate for the Fed in this attempt to control inflation. “There are a lot of numbers below 7%, but still above 2% or 3%,” Furman tweeted.

Not the worst case scenario yet: the US central bank is trying to catch up and plans to increase rates to 4,25% by December. As the economy performed negatively in the first two quarters, the concern now is the risk of recession. The impact will be global.

“Destroying jobs and crushing the wages of millions of workers is reckless and dangerous. The recession is not the solution to inflation”, evaluated the European Union’s high representative for Foreign Affairs, Josep Borrell. “Everyone is forced to do the same or the currency is devalued. Everyone is rushing to raise interest rates, and that will lead to a global recession”, warned the international leader.

Increase in pensions will weigh on the worker’s pocket

To accompany the rise in prices, the government of Joe Biden announced on Thursday (13) that American retirees will benefit in 2023 the largest nominal increase in PAYG pension since 1982 : an increase of 8.7%, or US$ 145 (almost R$ 766 )) per month, after a growth of 5.9% in 2022. “It helps seniors have a little more freedom to deal with inflation,” said the US president.

The approximately 669 million American retirees will receive, on average, US$ 1.815 (R$ 9.815 ) per month in the next year, compared to US$ 1.669 (R$ 8.815) in 2022.

There is a PAYG pension in the United States, created in 1935, as part of the New Deal, by Franklin Delano Roosevelt, and administered by Social Security. Funded by a tax of , 4% on wages, it represents about half of pensioners’ income and is indexed to at the cost of living since 1975.

In short, the employees will pay the bill. In the last year, they had a nominal increase in their weekly wages of 4.1%, but an actual drop of 3.8%. A situation that is unlikely to be reversed anytime soon.

Unfavorable economic scenario for Biden

A few weeks before the midterm elections in the country, the scenario is not in favor of Biden and the Democrats. Investors are seeing the stock market weaken, households are experiencing doubling in mortgage rates and bracing for a housing crash; Wall Street is on the alert for a possible financial shock, with the default of over-indebted private investors, and, finally, US partners, such as the United Kingdom, suffer from the rise in the dollar and are unable to obtain more funding.

In this context, the republican camp fires against the president’s administration. “Biden’s Inflation Nightmare Destroys His Retirement Savings,” he accused on Friday (13), in his morning newsletter, Sean Hannity, presenter of Fox News.

The president of the United States, however, shows no embarrassment. “Americans are concerned about the cost of living: this has been true for years, and they didn’t need today’s report to know that,” the president tweeted on Friday. I breathe so that they can pay their expenses”, concluded the president.

Next, Biden cited inflation as a global phenomenon and praised “the excellent performance of the market”.

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