Brazilians continue to face over-the-top prices
October 15, 2013, 7:09 pm

Clothes, electronics, even cars are priced higher in Brazil than neighbouring countries [Getty Images]

Traveling nearly 5,800km in a nine-hour flight for an average fare of $1200 roundtrip, the voyage still made more sense to her than having to deal with the outrageous prices in her local neighbourhood shops.

Meanwhile, 10-year-old Rodrigo Gamma, who loves video games and hamburgers, lives in São Paulo and has been dreaming of holding a birthday party at the local McDonalds. While this appears financially doable – a relief, one would think, it is actually challenging for parents short on money.

The Big Mac in Brazil costs $5.68, more expensive than in Tokyo, where it costs $4.16, and in the US where it sells for $4.20.

In fact, the Big Mac in Brazil is the fourth most expensive in the world.

While Brazil appears to be narrowing the income gap between rich and poor – in 2012 it succeeded in lifting 3.5 million people out of poverty and one million out of extreme poverty – persistent inflation continues to threaten the savings of many in the middle class.

According to the Brazilian Institute of Geography and Statistics (IBGE), inflation peaked at 6.7 per cent in July, dropping to 5.9 percent in September.

Last week, the Central Bank raised its benchmark interest rate for the fifth time in a row this year in an attempt to boost consumer spending.

But higher interest rates and scattered tax repeals have thus far had little impact and have forced consumers to resort to often innovative measures.

In Priscila’s example, traveling to Miami to purchase consumer goods has become a necessity, reversing the public perception that overseas shopping incursions are ostentatious.

Pursuing high-end goods

The automotive industry is another example where prices seem unjustifiably high. Brazil is one of the global leaders in automotive manufacturing – nearly 3.5 million vehicles a year – but it costs more to buy a car here than it would in a country that imports from Brazilian exporters.

For example, the Volkswagen Gol – the country’s best-selling car which came off the line in 1980 – sells between $5,000 and $8,000 less in Mexico than it does in Brazil.

Nevertheless, these same units have still been selling like hot bread all over the country. The factories are so busy and the sales are reaching unprecedented records, that according to executives inside the publishing market, the automotive industry is cutting its advertisement budget in half.

There are endless waiting lists for the most coveted models.

The ability of many Brazilians to afford such cars reflects the positive economic changes over the past decade, like the decline in unemployment, which is now at historically low levels, and continuing government incentives.

Salaries climbed in the past 10 years, with per-capita income now about $11,630, according to the World Bank, compared with $6,990 in neighboring Colombia.

But Brazil finds itself far below developed nations like Canada, where the per-capita income is $50,970.

As a result, a resident of São Paulo, Brazil’s financial capital, has to work an average of 106 hours to buy an iPhone, while someone in Brussels labours 54 hours to buy the same product, according to a global study of wages by the investment bank UBS.

The differences in purchasing power are particularly stark when it comes to electronics.

Steep taxes and import tariffs have sent prices skyward in this sector. An unlocked Samsung Galaxy S4 retails for around $630 on Amazon’s US store; the same phone in one of Brazil’s metropolises costs more than $1,100.

The outcome is that some consumers have resorted to more subversive channels. Last year, two American flight attendants were arrested in Sao Paulo’s airport because they were suspected of trafficking 14 smart phones hidden in their underwear from the US.

“Custo Brasil”

Brazil now has the highest real interest rate in the world [Xinhua]

Many in the middle class complain that they are bearing the brunt of price increases.

Limiting the authorities’ maneuvering room, the popular indignation is festering at a time when huge stimulus projects are failing to lift the economy from a slowdown, raising the spectre of stagflation in Latin America’s largest economy.

The economists call this set of distortions “Custo Brasil“, or “the Brazil cost”. It could also be described as the combination of high cost, low quality and sheer annoyingness that makes doing business in the country such a soul-destroying chore.

Marco Gomes left his job and dropped out of college to start his own company. He was 20 years old. Five years later, Boo-Box is an Internet advertising agency that reaches 65 million people – 80 per cent of Brazilian Internet sites – with three billion ads per month.

The programmer from Brasilia said that the greatest obstacles he encountered when launching Boo-Box were the high tax burden and the bureaucratic process of starting a company.

Opening a business in Brazil takes two months. In the US it can take 24 hours.

“It took a lot of resistance and insistence. The Brazilian entrepreneur is a hero,” says Gomes.

Today Boo-Box has employees in Argentina – where the labour cost is three times lower than in Brazil.

By Fernanda Bak for The BRICS Post in Brasilia, Brazil