At the beginning of September, deaths from Covid-19 reached the figure of 598 thousand.

The daily average of new cases is around 10 thousand; the deaths have now been less than a thousand a day for two months. Numbers still high, but which confirm how Brazil seems to have emerged from the most critical phase (April-June 2021).

The vaccination campaign (at least one dose) reached 147 million people, about 69% of the population. 44% (93 million people) are fully vaccinated.

Inflation growth is still in the foreground, with the IPCA index reaching 10% on an annual basis.

For gasoline, in the month of September alone, the increase was 2.85%; in the last 12 months the growth was 39%. Recall that the current price is around R$ 7 per liter, corresponding to 1.12 euros and 1.30 dollars. Very little by European standards, very high by American ones (in the USA the price of a liter of petrol today is around US $ 0.93 per liter).

Regarding electricity, the increase is determined by the water crisis that has hit Brazil for months now. With a strongly hydroelectric matrix, the scarcity of water in the dams has led to the ignition of plants powered by fossil fuels, with a much higher cost per Kw / h.

The gradual reopening of commercial activities and the related growth in consumption are also having an inflationary effect. The decrease in demand, caused by the restrictions imposed by the fight against Covid-19, had prevented merchants and companies from raising prices, keeping inflation artificially low. With the reopenings, in order to return to acceptable profit margins (or at least not to operate at a loss) companies are increasing prices.

In the meeting ended on 22 September 2021, Banco Central decided to increase the discount rate (SELIC) by 1%, bringing it to 6.25%. This is the fifth increase in 2021 and a new increase has already been announced (presumably still 1%) which will be ratified at the meeting of 26 and 27 October 2021.

The possibility of bringing 2021 inflation back within the meta range (3.5% with a tolerance interval of 1.5% more or less) has disappeared, Banco Central is already looking to 2022 and declares that it wants to do everything what is necessary to bring inflation back to the predefined goal, without thereby jeopardizing economic growth.

If the discount rate (SELIC) will reach, as expected, 8.5% per annum, the estimated additional cost for the maintenance of the public debt by the State (i.e. interest on the debt) should be around 200 billion reais. A huge value, which would further worsen the Brazilian fiscal situation, which is currently already critical.

Still on the fiscal front, there is good news regarding revenues in August 2021, which confirm the good state of health of the economy, in particular of the sectors most aimed at exports. In the first 8 months of 2021, real revenue growth was 23.5% higher than in the same period of 2020.

Exports also increased, which in the period September 2020 / August 2021 (12 months) reached the value of US $ 260.6 billion, the highest value in the historical series that began in 1995. However, this phenomenon did not cause a proportional entry of currency. foreign, as one would expect. According to some analysts, this difference is determined by the fact that part of the payments made to exporters are remaining abroad, thus preventing what would be a fair valuation of the Brazilian currency.

In mid-September the government decided to increase the IOF (Tax on Financial Operations), both for companies and individuals. The tax on foreign exchange transactions, bond investments, insurance premiums, loans and financing increases significantly (about 50%).

On the political front, the “truce” between Bolsonaro and the upper echelons of the legislative power should be noted, which led to a reduction in tone and greater serenity in relations between the country’s institutions. After the verbal assaults and covert coup threats on the occasion of the demonstrations on 7 September (Independence Day), Bolsonaro backtracked, also using the help of former President Temer.

Here is the trend of the main indicators:

GDP (Value added at market prices)

GDP – real growth (%)-3,5%-3,3%1,3%1,8%1,4%-4,1%  5,04%

The 2021 GDP forecast is practically stable, going from + 5.15% at the beginning of September to + 5.04% today. The 2021 performance will remain positive, despite the water crisis, the drought that hit crops such as maize, the lack of semi-finished products in the industrial chain (especially the automotive sector) and the stagnation of consumption, due to growing unemployment.

For 2022, the forecast is for a growth of 1.57%, a sharp decline compared to that of a month ago (+ 1.98%).

Inflation and real/dollar exchange 

IPCA (IBGE – %)10,7%6,29%2,95%3,69%4,20%4,36%8,51% 

The 2021 inflation estimate is still growing, passing in a month from + 7.76% to 8.51%.

The IPCA index for the last 12 months is now at 10%. Despite this being a global trend, rising inflation in Brazil is particularly serious and mainly affects the poorest families. For this reason, pressure is growing to further extend the emergency aid, even at the cost of worsening the public deficit. It will be above all on this front that the game of the next presidential elections (October 2022) will be played, given the growing discontent of the population that is causing the popularity of Bolsonaro and his government to collapse.

Exchange rate R$/US$ (end of the period)3,903,253,253,754,015,195,20 

The dollar is quoted today at R $ 5.49, up sharply from a month ago (R $ 5.18). Internal political instability and the crisis on international markets are draining valuable currency and even the rising level of interest rates has not yet caused the inflow of speculative capital. Despite the tensions on the exchange rate of the last few days, an appreciation of the real against the dollar is expected in the last months of 2021.

The estimate of the dollar price for the end of 2021 is slightly up: R $ 5.20 compared to R $ 5.17 a month ago.

The price of the euro on 6 October is 6.39 reais, up sharply compared to a month ago (6.14). The strengthening of the dollar against the euro recorded in the last month has resulted in a relatively minor devaluation of the real against the European currency.

Interest rate

Nominal Interest rate (end of the períod)14,9%13,8%7,00%6,50%4,50%2,00%8,25% 
Real interest (deflactor: IPCA)2,60%6,91%4,05%2,81%0,30%  -2,38%  -0,26% 

Expectations for SELIC at the end of the year are still increasing: 8.25% today against 7.65% a month ago and 3.00% at the beginning of the year.

With these forecasts, the real interest rate (nominal rate minus inflation) at the end of 2021 is always in negative territory. Today, considering inflation at 10% and the discount rate at 6.25%, the real interest rate is strongly negative (about -3.75%).

The Brazilian stock market (Bovespa)

Ibovespa closed the session on 6 October 2021 at 110,458 points, -6% compared to the close of a month earlier. The decrease was -12% in dollars and -10% in euros.

Compared to the maximum reached on 7 June 2021 (130,776 points), the drop is 15%.

During the month of September, various events had a strong impact on international markets: above all the decision by China to decrease steel production (with a strong impact on Brazilian companies such as Vale and CSN), the crisis of the Chinese real estate giant Evergrande, the inflationary tensions in the US that prompted the Fed to announce a possible anticipated hike in interest rates.

As always happens in times of turbulence, large investors have decreased exposure to emerging markets, and therefore there has been a negative flow of capital from Brazil. Internally too, the uncertainty over fiscal policy and the stalemate of the main reforms being voted on in Parliament has led investors to decrease their exposure to the stock market.