Economy: Inflation in Brazil

Brazil, an economy expanding in the world market is known as one of the South American countries that has a well-developed agricultural, mining, manufacturing, and service sectors. This thriving economy has been experiencing economic growth slowly but surely (World Fact Book). They have secured and maintained inflation rates in the single digits for the past ten years the lowest recorded at 2.6 in 2003 and the highest being 6.9 in 2005 (World Fact Book). Brazil’s ultimate aim is to maintain inflation rate below 6%. In macroeconomics national income, inflation and unemployment goes hand in hand, from a monetarist point of view the change in supply of money will have an effect on unemployment, inflation and fluctuate national income (Robinson Rojas 2014). Views from the monetarist are seen in Brazil’s economy since the change in the supply of money has had an effect on this economy from as early as 1986. To combat high inflation rates Brazil changed currency several times from 1986 to 1995 until the deployment of the Real Plan (Brazil Travel). The Real Plan which was developed by the Minister of Finances Fernando Henrique Cardoso, Brazilian economist Persio Arida and Andre Lara Resende with MIT Rudger Dornbush endorsing the idea by publishing it in his book of macroeconomics (Brazil Travel) was the beginning of the a stable inflation rate and the beginning of extremely high unemployment rates in the growing economy of Brazil with fluctuating national income.

Inflation has many components, in Brazil indexation was seen as their reason of high inflation rates so the plan was introduced, because of the rates in a period before sellers will assume that the rates may be the same and would factor that index in their prices, doing this the rates remained higher and sometimes where higher because of this assumption. There were three key elements to the plan being a success 1) fiscal strategy 2) monetary reform and 3) Opening the economy (Brazil Travel).

These strategies had positive and negative outcomes for the economy and the people in Brazil. The fiscal strategy which was based on Constitutional Amendments #17 approved on November 22, 1997 which changed articles 71 and 72 of the Temporary Constitutional Provisions to extend the period of the Social Emergency Fund was to be used for economic and social interest. Among the many positives of this strategy the reform of social security of the public sector and labour legislations among others failed.