Fri April 12, 2013
In The Wake Of Brazil's Boom, Prices To Match
Originally published on Fri April 12, 2013 10:56 am
In Sao Paulo, Brazil's largest city, a Starbucks coffee shop looks as it would in the United States. It has the same jazzy music; the same items on the menu.
There is one thing that is different, though: the prices.
"Everyone told me it's expensive, but when you see it yourself it's shocking," says one customer, Thierry, who is from Geneva and is in town for a wedding.
The largest-size chai latte costs nearly $6. Over the weekend, a Brazilian magazine posed the question of whether Sao Paulo has the most expensive pizza in the world. The answer? Yes — an average pie will run $30 to $40. A pair of name-brand running shoes costs $150 to $300.
Thierry warns those coming from outside the country that they better start saving now.
"You have to come with a wallet full of money," he says.
Brazil will host two major sporting events in the coming years: the soccer World Cup and the Olympics. The country is expecting a massive influx of foreign visitors. Worries over crime usually grab the headlines.
But tourists coming to Brazil these days may be clutching their wallets for a different reason — and it's not just visitors who are astounded by rising prices in Brazil.
Ghost Of Hyperinflation Past
Over the past few years, the country boomed. Incomes rose, and unemployment plunged to record lows. But the numbers are changing. Growth is slowing and inflation is creeping up. And the cost of food, especially, has jumped in the past year.
Simone Camargo da Silva, a 35-year-old student, shops at a food market in central Sao Paulo. She jokes that potatoes, tomatoes and onions are "the price of gold."
"I'm worried about inflation," she says. "It keeps rising, and we don't know when it's going to stop."
Brazil has a bitter history with rising prices. It suffered hyperinflation in the 1980s and '90s, so the population here casts a wary eye on any swing in the cost of goods.
And swinging they are: Tomatoes have gone up 122 percent since last year, potatoes 97 percent, onions some 76 percent. The prices of services — haircuts, vacations — have skyrocketed, too.
Robert Dumas, who studies the Brazilian economy at the Institute of Education and Research, calls the numbers "absolutely bad."
"For the last 12 months, we've reached an inflation of 6.6 percent," he says.
Need For More Investment, Less Consumption
That breaches the government's target rate of 6.5 percent. Dumas says there are many reasons for big price tags in Brazil — high taxes, poor infrastructure — but the main one is booming demand.
"The purchasing power of the Brazilian is increasing," Dumas says.
So much so that Brazilians regularly fly to the U.S. to shop and take advantage of low prices. American Airlines, for example, has a special exemption on its flights to and from Brazil — passengers can take up to five 70-pound bags, and most Brazilians fill up the quota.
But Dumas says what Brazil needs now is more investment and less consumption. He also says the central bank needs to raise interest rates, something it hasn't wanted to do.
Some Brazilians, though, are taking matters into their own hands.
Augusto Cordero de Mello runs Nello's restaurant in Sao Paulo. The Italian eatery recently took tomatoes completely off the menu after the price skyrocketed.
"We decided not to buy the tomato at an absurd price, and try to avoid using the tomato here," he says. "That's hard, very hard."
He says tomatoes are back on the menu for now, but he won't hesitate to take them off again if the price isn't right.