Economy: The evolution of Brazil’s purchasing power – The Brazilian Report

Brazils 20142016 recession has left lingering effects on Brazilian society. The massive reduction in inequality levels boosted by the commodities boom of the early 2000s allowed many people to leave poverty. But after 11 straight quarters of negative GDP growth, many of these same people have taken the social ladder in the opposite directiongoing back to their previous levels of social vulnerability.

In our Weekly Report, for platinum and gold subscribers only (become one now), we explored how Brazils inequality levels grew moreand fasterthan in any other period in recent memory. Now, we want to look into

how the dynamics of consumption have changed as Brazil experiences its worst economic five-year period on record.

For socioeconomic purposes, Brazilian society is divided into classes from A to E (richest to poorest). That classification is based on the existence of goods such as television sets, computers, fridges, microwave ovens, etc. It also takes into account the infrastructure of households (does it have a bathroom?) and the education levels of the “head” of the family.

On average, average household income in Brazil is, per class:

• A: BRL 25,554.33 (or USD 6,246.76)
• B1: BRL 11,279.14 (USD 2,757.19)
• B2: BRL 5,641.64 (USD 1,379.10)
• C1: BRL 3,085.48 (USD 754.25)
• C2: BRL 1,748.59 (USD 427.44)
• D/E: BRL 719.81 (USD 175.96)

For the sake of comparison, it is worth evoking the World Bank’s new international poverty threshold of USD 1.90 per person per day (or USD 57 per month) established in 2015. So a one-person D- or E-class household would have just two times the bare minimum for a human being’s basic needs.

The loss of purchasing power. And the exception for the super-rich

Between 2014 and 2018, no less than 4.2 million householdsthe equivalent of the entire population of So Paulofell into lower classes (C, D, and E), according to measurements by the Brazilian Association of Polling Institutes (Abep). Meanwhile, classes A and B shrank.

Between 2008 and 2014, wealthier social classes lost purchasing power when we adjust values for inflation. Meanwhile, people at the bottom of the financial pyramidnear or below the poverty lineexperienced enormous gains of around 30 percent. They were still poor, but had much improved living standards. 

(That goes some way to explain why former President Lula and his Workers’ Partywho stayed in power between 2003 and 2016are beloved among poorer voters. And why the Northeast, one of the neediest regions in Brazil, remains a Lula stronghold.)

When the recession hit, the poorest experienced a major downfall. As a matter of fact, the super-rich were the only class to recover their purchasing power (as the chart below showswith values adjusted for 2008-2019 inflation).

During the recession, 6.2 million Brazilians fell below the poverty line. According to Fundao Getulio Vargas, that is due to the lack of expansion in Brazil’s welfare and cash transfer programs (such as Bolsa Famlia).

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Economy: The evolution of Brazil's purchasing power - The Brazilian Report