Economy
Edward Finney
2 Oct 2008

From 1964 to 1994, the hyperinflation rate was about 5,000,000,000,000%. I have no idea what the term is above trillion. . .maybe zillion. Does anyone know how to describe this percentage rate of inflation in Brasil? At it´s worse? Prices in the supermarkets were changed twice a day in the last days of hyperinflation. People with a fixed monthly salary barely survived. Investment was impossible. One bought telephone lines, used cars, literally anything that could be sold at later date for a profit. The bank had an incredible overnight percentage rate to safeguard your money. Pay phones used slugs instead of coins which were purchased at a newstand at a daily increased cost. Apartment buildings, factories, and agricultural projects were never finished because of increased inflationary costs. Chaos reigned. Economic improvement impossible. A country deep in debt without a future.

It all changed in a flash of brillance. The Plano Real conceived by Enrique Cardosa. Gone were the change in currency every year. No more Cruzeiro, New Cruzeiro, Cruzado, New Cruzado, Cruzeiro again followed by the New Cruzeiro. . . . No more changing currency when it cost 100,000 of something to buy a beer. The custom of taking 3 zeros off the old currency and changing the name became history with the Plano Real. Before the Plano Real, the US Dollar rate changed on a daily basis equal to or more than the inflation rate. For a person with access to dollars, living in Brasil was incredibly cheap. . .an absolute bargin basement for gringoes.

It all ended when the Plano Real started in 1994. The exchange rate between the US Dollar and the Brasilian Real was supposed to 1 to 1 but within days the dollar dropped to $0.84. It became an incredibly expensive nightmare for gringoes who formally lived high on the hog. Most had to leave the country, including me. My 80 cent 600ml beer became about $3.50. Rent, food, gasoline. .literally everything became impossible to buy. The dream of living in Brasil was over. Temporarily!

For Brasilians the long nightmare was over. Inflation stopped in it´s tracks and life became liveable for the first time in over a decade. And the gringos went home. For a few years. Slowly the dollar increased in value but inflation in Brasil remained at a low rate. In 1999, a major devalutation of the Real occured to help the export market and it again became possible for foreigners to return to Brasil where it was again liveable but no longer cheap.

Recently (2008), inflation showed signs of starting. Not just in Brasil but worldwide. The drastic increase in oil prices and other commodities in response to the dollar devaluation affected the prices of almost everything. Heavy rains in the interior destroyed many of the staple crops during the winter of 2008. Prices of corn, soybeans and soybean cooking oil, beans, potatoes, vegetables (especially tomatoes which tripled in price). .the memory of the past hyperinflation was still fresh in the minds of many and concern returned. The government did not resort to price controls as in the past but pulled every and all inflationary tools at it´s disposal out of it´s bag of tricks.Inflation reached a troublesome percentage but soon decreased to a more reasonable 5 to 6% as the dollar regained some of it´s former value and commodity prices subsided.

The government is all too aware of the destructive power of inflation and is doing everything in it´s power to keep it under control. Recent significent oil discoveries off the coast of Rio in the Pre-Sal field will eventually keep oil prices under control and make Brasil an oil exporting country rivaling the middle east. Massive increases in grain production like soy, wheat and corn should keep basic food prices low. Temporary interest rate increases havea cooled the internal consumer market somewhat resulting in stable prices. These and other measures have decreased the rate of inflation and the recent fear of this nightmare has subsided. It appears that Brasil has successfully won the inflationary battle and the economy will continue growing at a satisfactory rate.