Who can live with these prices?

When Brazilians kissed inflation goodbye last
year they have also entered a dangerous level of high prices that only
very slowly is coming down. These days, almost everything is more
expensive in Brazil than in any other place on earth. Be it a medical
consultation, an electronic gadget, a computer software, a pair of
jeans or a dozen bananas.

Carlos Emmanuel da Fonseca Barreto

In July 1994, a new currency was established in Brazil, the fourth monetary unit change in 10 years. The Real received
a warm welcome from all Brazilians, and was able to lower inflation
from a scary 50% a month to a present 2% monthly level. One and a half
years later, an optimistic government expects inflation in 1996 to
reach the maximum yearly rate of 15%.

However, the dream of the real becoming a hard
currency is far from reality. Today, Brazilians are experiencing a
nightmare of outrageous prices for some goods and services: like
clothing, food, electronic products, plumber, rent and doctors. Even
though inflation has dropped, prices have been unbelievably high. The
real introduced Brazil into the developed world with dollar linked
prices (right now 0.95 reais = $1). While the country has a $
3,400 per capita income, however, its prices exceed countries with per
capita income above $15,000.

The discrepancy in prices, in a land where raw materials are abundant, is easily seen in food. The famous feijoada a national dish made out of pork and black beans at the Rubaiyat restaurant in Săo Paulo, costs 35 reais, a 150 percent price hike compared to last year’s 14 reais. There is no sense of value among the population. Thirty five reais is enough to buy two pigs of 30 lbs each and 10 lbs of black beans. The amount of goods purchased is enough to make feijoada for 25 people.

In another example, in the restaurant Arlecchino in Rio de Janeiro, a salt water fish filet dish costs 22 reais, a 975 percent price increase from the time the fish is caught. Now, the entire fish is sold by any fisherman for about 2 reais to supermarkets and the supermarkets sell them for 13 reais
to the people. It is amazing when you consider that in Paris, one of
the most prestigious restaurants in Montparnasse, the Coupole, offers
the “menu du garçon” a choice between an appetizer and a main dish or a
main dish and a dessert for 20 reais.

Another ridiculous case in point is Rio’s
sophisticated Italian restaurant Da Brambini which increased the price
of its most famous dish tortellini with mushrooms by 70%, while eggs
and flour, the main ingredients in this dish, had their prices lowered
by 30%. The only explanation for such exorbitant prices is the
inflationary expectation ingrained in every Brazilian.

After years of dealing with worthless cents,
Brazilians got used to throw away their coins. Some haven’t quite
grasped the extraneous idea that a bus ride cost less than one real and that is possible to buy a liter of gasoline with 54 centavos. Prices for goods and services tend to adjust from real to real rather than just a few centavos at a time.

During periods of high inflation, Brazilians used to
sweep coins under the carpet, throw them on the streets and cast coins
into lakes, fountains and in the ocean praying for better times to
come. This habit of neglecting the use of cents is creating a false
idea of a hard currency.

In any civilized commercial center, the customer is
very important. In Brazil, many businessmen ignore this fundamental
rule. Some entrepreneurs still believe that the best is to sell
products for the highest price they can get. This practice of high
profits annihilates productivity, efficiency and competition. The
inflationary mentality plus a closed market to foreign competitors
create the perfect environment for high prices.

Brazilian entrepreneurs are afraid of working with
low profit margins and gaining according to the concept of economy of
scale a high value return due to high quantity sales. They do not
understand that the problem is losing customers. The only way out is to
open the economy to foreign products and force competition.

Prices on products can be controlled through imports
and other mechanisms, but what to do with services? How can a country
import doctors, plumbers, car washers? An electrician in Belo Horizonte
charges 150 reais per hour, a dermatologist in Curitiba asks 250 reais per visit and religious services in Rio de Janeiro cost 960 reais.
These services experienced adjustments of 70, 50 and 91 percent
respectively within a year. In Săo Paulo, it costs $39 to wash a car,
while the same service in Washington DC goes for $7 and for $8 in
Paris.

Marisa Monte, a famous Brazilian singer, in a recent
concert in Rio de Janeiro charged $42 for tickets while her concert
last year in the House of Blues, in Los Angeles, cost only $20.
Brazilians have to pay more for their culture, products and services in
Brazil than outside the country. A Brazilian papaya costs $3.40 in
Paris, but $3.86 in Rio. An imported Brazilian compact disc in New York
costs $12.50 and $25 in Săo Paulo, a Brazilian movie in Bonn, Germany,
can be seen for $5 and for $8.50 in Recife. While a Brazilian dentist
in Lisbon charges $38 for a filling, his Brazilian colleague in
Curitiba, Paraná, wants $ 94 for the same job.

The same phenomenon occurred in other countries while
trying to stabilize their economies, among them Argentina, Chile and
Israel. There was a time when Buenos Aires was the most expensive city
in the world to live. Today, any major Brazilian city can beat the
Argentinean capital.

The end to these price discrepancies will only occur
when equilibrium is reached between supply and demand. The consumption
binge that euphoric Brazilians have embarked on due to the false
impression that they now have a hard currency will have to decline.
Moreover, Brazilians will have to learn how to bargain and how to buy
only what is necessary.