(Bloomberg) — No one benefited more from Brazil’s easing inflation than its poorest residents last year. But a sudden spike in food costs is now hitting those same Brazilians hardest, adding to the challenges facing President Luiz Inacio Lula da Silva’s promises of cheaper “barbecue and beer for all” in 2024.
Annual inflation for families earning less than 2,000 reais ($405.70) tumbled to 3.27% in December from 6.35% a year prior, the biggest slowdown for any income level, according to figures released Wednesday by the national Institute for Applied Economic Research.
But while the data provided good news for Lula, who campaigned on renewed prosperity for all, it also came with significant warning signs for this year. Prices of staple goods like cereals, produce and cooking oils rose sharply in December, and are expected to continue increasing due to the effects of the El Nino weather phenomenon on Brazilian farms and food production.
Inflation accelerated among all income levels on a monthly basis in December, with the wealthiest suffering from more expensive airfares that have caught the attention of Lula and other top government officials. The poorest Brazilians were among those with the biggest monthly jump in prices, because food is their main cost.
El Nino has already delivered heavy rains to parts of Brazil and droughts to others, disrupting harvests that are vital to Latin America’s largest economy and causing analysts to revise already-sluggish growth estimates downward.
Read More: Lula Gets New Nemesis in Inflation Fight as El Nino Brings Rain
The resulting cost increases facing poor Brazilians, in particular, pose a potential threat to the momentum Lula built last year, when a stronger-than-expected economy helped him largely deliver on his main campaign promise.
By the end of 2023, annual inflation had slowed to within the central bank’s target range for the first time in three years, reinforcing the monetary authority’s plan to continue the interest rate cuts Lula spent months demanding. Meat prices fell almost 10% over the year.
Lula also increased social welfare payments and programs, helping push his approval to 60% among the poorest voters, who have traditionally served as a strong base of support for his Workers’ Party. That figure is about 10 points higher than his overall rating, according to recent polls.
Rising food costs may also limit Lula’s ability to combat Brazil’s high levels of income inequality, long one of the leftist leader’s top political priorities.
Economic gaps between Brazil’s rich and poor expanded in the years before he returned to office, according to a study released Tuesday by the Getulio Vargas Foundation. The wages of the 15,000 wealthiest Brazilians rose 96% between 2017 and 2022, while those of the top 1% of earners grew 67% over the same period.
The bottom 95% — about 146 million people — saw wages rise 33%, the Rio de Janeiro-based think tank found.
“What everything indicates is that the level of income concentration at the top has reached a new historical record, after a decade of relative stability in inequality,” Sergio Gobetti, an economist and author of the study.
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