Some Extra Money for the Less Fortunate

We ended last year with some frolicking around with the candidates of the Miss Bumbum contest. It is time to get a bit more serious.
One of the first announcements for 2012 was the adjustment of the minimum wage. An increase of 14% will benefit the approximately 48 million low-income Brazilians.

But what means BRL 77,00 (USD 43.00) extra a month? It might be little, but it gives the people with the lowest wages some extra to spend. More importantly there are two other facts which will influence the economic development of Brazil tremendously. Or so it is said.

Number one. With the adjustment the minimum wage goes from BRL 545 (USD 303) to BRL 622 (USD 346). 48 million people who live from a minimum wage are benefited and have seen a cumulative gain of 65% above inflation since 2002, according to Dieese (The Brazilian Institute for Statistics).

Number two. To those earning a minimum wage the increase of BRL 77 might seem small, for the country’s economy this adjustment will mean a ‘stimulus’ or ‘extra purchase power’ of BRL 47 billion (USD 26 billion). The increase might look small but it still represents quite some extra food on the table.

Economist Edward Rino explains that more money in the workman’s pocket means a greater volume of purchases. “If you look at the number of people who receive a minimum wage, actives as well as retirees, the adjustment will result in a very high financial increase of our economy and this is encouraging the federal authorities to state that the economy growths up to 5% in 2012, a figure I don’t believe in”.

And he might be right. The forecast for growth of the Brazilian economy in 2012 fell again. A weekly survey conducted by the Central Bank together with market analysts of Institute Focus shows that the expected expansion of the Gross Domestic Product (GDP) – an index that measures the volume and evolution of the economy – fell from 3.40% to 3.30%. A month ago, the market expected a stronger economic growth of 3.48% this year.

For the past year the numbers dropped again. According to the survey, the median of expectations for GDP growth in 2011 fell from 2.90% to 2.87%, down from 3.09% recorded four weeks before.

In line with the weaker economy, projections for the performance of the industrial sector also worsened. For 2011, the expected expansion of the segment fell from 0.82% to 0.78%. A month ago, the market bet on industrial advance of 0.94% last year. For 2012, the numbers have not changed and kept the analysts forecast growth of 3.43% against 3.46% a month ago.

Facing a stagnating world trade and consequently a decrease in exports of commodities (the only item Brazil really exports), it is not a bad idea of President Dilma Rousseff to stimulate the internal purchasing power by increasing the minimum wage. BRL 47 billion might not seem a lot for a country the size of Brazil, but it is money directly and immediately flowing back into industrial activity. There is one danger however. Inflation!

Although official figures relate an inflation of roughly 6%, reality is quite different. Shoppers, particularly the ones visiting supermarkets for their daily food supplies, are confronted with shameless price increases of 10 to 15%, sometimes implemented each month in a row. That fact eliminates the intention of the government to add some extra wealth to the less fortunate.