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Economy in Brazil: Real turns 20 with loss of 80% of its value

The currency completes two decades of use in Brazil: purchasing power of Brazilians rose, but inflation still erodes income.

Real went into circulation 20 years ago, leaving behind a triple-digit inflation and the consequent bartering currency. With the stabilization of the economy, achieved through a set of changes that named the Plano Real, Brazilians experienced for a little while the feeling of seeing their money worth more.

“It was a lot of inflation, and there were many zeros. There would be no cash register he could register as many decimal places as Real had not been created, “said David Simon Silber, professor of economics at the University of São Paulo (USP). Before the real prices soared from one day to another and the average change amounted to 100% in a month.

In July 1994, Itamar Franco (right) shows the new Real Bills alongside Rubens Ricupero, that replaced Fernando Henrique Cardoso as finance minister (Photo: Ed Ferreira / File / AE)

Despite the work that he gave to the Brazilian get used to the new currency – many calculators used to transform the former currency (real cruise) and have a real reference value as the product – the plan bequeathed the possibility of planning spending.

“Brazilians learned the true value of money. Knew how effectively won and the real value of assets that could acquire. I could understand the interest in Brazil and the need to have clear goals to combat inflation. The increased purchasing power, determined by the stability of the economy. And the most important is that during the years of stability, all Brazilians began to plan for the future, prepare a financial plan over the long term, “says Fabiano Guasti Lima, researcher at the Assaf Institute.

Hyperinflation was abolished in 1990, but prices continued to increase over the years, and R$1 — which bought ten rolls of bread before or even a pound of chicken — can buy not more than a handful of candies and chewing gum.

It is hard to find products for R$ 1. At the groceries, you can buy very little: few oranges, onions and an apple. In the bakery, one can get three loaves, with the pound nearing R$ 8. Among industrialized product, nothing very healthy is within this price range, other than powdered juices, gelatins and sodas. Hunting high and low, one can find chocolate biscuits on promotion, 300 ml water bottles  or a can of peas.

Considering the cumulative inflation from July 1994 until May of this year, 359.89% of the Consumer Price Index (IPCA), the purchasing power of the Brazilian currency fell nearly 80%. Thus, U.S. $ 1 20 years ago is now worth U.S. $ 0.21 and R $ 10 of that season was reduced to R $ 2.13. Compared the amount of $ 100 in 1994 and this year, the difference amounts to R $ 78.70 according to Mathematician José Dutra de Oliveira Sobrinho.

How is inflation today

According to Silber, a professor at USP, the country now lives with an inflation that can not be considered low, even though is much lower than high numbers of the early 90s.

“The literature considers high [inflation] when it is higher 10% a year. Low is it when it is lower than 3%. Brazil is halfway [approximately 6%]. Today, inflation in this country is the wage squeeze [when the salary increases do not keep pace with inflation]. If you take the prices that the government controls, such as buses, petrol and energy, inflation would be uncomfortable. And people of lower income is what most feel, can no longer buy meat every day, “he says.

Above average prices

Some expenditure rose even faster than inflation since the beginning of the Real Plan and concern those that are familiar with stability. “Brazilians are much more sensitive to an increase in the inflation rate. Without the adoption of the Real Plan, she certainly still quite uncontrolled, the levels observed prior to the plan or even worse, “said Alessandra Ribeiro, the Trends Consulting.

The basket sold in São Paulo, for example, was 443.82% more expensive, while the accumulated inflation was 359.89%. The basket price was R $ 67.40 in July 1994 and increased to R $ 366.54 in May this year, according to data from the Department of Statistics and Socioeconomic Studies (Dieese).

“The current fear of inflation is due to the loss of purchasing power we feel in our pocket. Buy fewer things we bought at the beginning of the Real Plan. Without it [plan], which laid the foundation of economic stability, the situation would be critical. We would have very high inflation, high unemployment and lackluster growth of GDP [Gross Domestic Product]. Argentina today is a reflection of this scenario, “says researcher Assaf Institute. ‘s the minimum wage over the years has also made ??the Brazilian feel like inflation has eroded their purchasing power, which had been taken back in 1994. De R $ 64.79, the floor went for R$ 724. Without taking inflation, the increase in value is encouraging, but when the rate is considered, the growth is much lower, 146%, as shown by the study Assaf Institute .

Employee of the Brazilian Mint incinerating Cruzeiro Reais bills during the first year of the Real Plan, in Rio de Janeiro (Photo: Otavio Magalhães / Estadão Content)

Financial investments

Inflation took a toll on earnings of those who had financial investments. The profitability of savings accounts — for example — was 1182.18% from July 1994 until March this year. With inflation, actual gains drop to 182.01%.

In the case of CBD (Certificate of Deposit), the cumulative return was even higher, 2059.19%. However, discounting inflation, gains drop to 374.9%.

Among all applications examined by the study of Assaf Institute, which recorded the highest profitability was the CDI (Interbank Deposit Certificate) of 3175.14%, but the real growth was only 620.35%. The Stock Exchange (Bovespa) ranks third with an actual nominal return of 1284.25% and 204.46%. “CDI had the highest return for being more stable over time. Paid more homogeneous rates for the period, which went through several crises and instabilities. The stock has suffered, not for herself, but for the various crises that have plagued the world and we just here feeling reflections “, Guasti, researcher at the institute said.

via Economy – Real turns 20 in circulation with loss of 80% of its value.

By Itamar Medeiros

I'm a Strategist, Branding Specialist, Experience Designer, Speaker, and Workshop Facilitator based in Germany, where I work as Director of Design Strategy and Systems at SAP and visiting lecturer at Köln International School of Design of the Cologne University of Applied Sciences.

Working in the Information Technology industry since 1998, I've helped truly global companies in several countries (Brazil, China, Germany, The Netherlands, Poland, The United Arab Emirates, United States, Hong Kong) create great user experience through advocating Design and Innovation principles.

During my 7 years in China, I've promoted the User Experience Design discipline as User Experience Manager at Autodesk and Local Coordinator of the Interaction Design Association (IxDA) in Shanghai.

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