Brazil’s Central Bank suggests subsidizing food and energy against inflation

RIO DE JANEIRO, BRAZIL – The president of Brazil’s Central Bank, Roberto Campos Neto, suggested Wednesday, June 1, that the government adopt a policy of subsidizing food and energy to contain the country’s high inflation, close to 13% year-on-year.

“We have a great social cost, with food and energy prices going up, and a poorer segment of the population needs some assistance,” Campos Neto, a well-known liberal economist, said at a conference with financiers.

Inflation in Brazil reached 12.75% year-on-year in May due to constant increases in fuel and food prices, which the government has not been able to contain despite several tax cuts and other measures.

President Jair Bolsonaro maintains that the inflationary pressure is a consequence of the international turbulence caused by the Russian invasion of Ukraine and the economic standstill imposed between 2020 and 2021 by the covid-19 pandemic.

Campos Neto, however, considered that just as the international situation boosts inflation, Brazil also benefits from higher tax revenues due to the increase in the prices of its raw material exports.

In this context, he said that “transferring part of this positive shock to solve social issues, through subsidies, is a good solution”.

In his opinion, the only care the government should take is that the subsidies are only “temporary” and do not become “permanent”.

He also clarified that “even if one is liberal and says that prices will reach an equilibrium, prices will continue to rise, consumption will fall,” and “this is neither socially nor politically viable”.

Despite the position of the Central Bank, an autonomous body since the middle of last year, the Minister of Economy, Paulo Guedes, and President Bolsonaro are opposed to subsidy policies, which both consider opposed to the liberal economic line maintained by the government.

With information from EFE