Porto Alegre, October 19, 2020 – It is always discussed in all markets the limits that the prices of a commodity can reach without compromising production and consumption activities. While sharp lows can discourage planting and production, very sharp highs can affect consumption. In the foreign market, there is some recovery in prices, but far from being exaggerated or conflicting with consumer activities. Corn at USD 4.00/bushel on the CBOT or USD 180/200/ton FOB cannot be considered high prices. However, in Brazil prices in reals reach unprecedented levels in a situation only expected for the first half of 2021. At the same time, prices in dollars are not outside of their historical reality of the Brazilian market. So, what is high? Undoubtedly, the exchange rate is a fundamental variable to support this scenario in Brazil, as it hinders the actions of necessary imports to counterbalance the domestic high in reals. It would be more practical for the consumer sector to ask the government for greater control over the exchange rate than the elimination of the extra-Mercosur tariff, which will not change at all the Brazilian domestic situation.
The increase in the internal Brazilian liquidity provides a derivation for prices in the economy that is going through correction. The Brazilian monetary base has grown 31% this year so far, with the government injecting a liquidity of almost BRL 1 trillion in the economy. The consequence is that this high liquidity ends up affecting prices if there is no growth in the production of goods and services in the same proportion.
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