09/30/2024 – 7:00
The employment data released on Friday, 27th, by IBGE (Brazilian Institute of Geography and Statistics) reinforced the scenario of a strong job market, with Pnad (National Household Sample Survey) recording a 6.6% rate of unemployment in the country, the lowest rate for a quarter ending in August in the historical series, which began in 2012.
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Unemployment at minimum levels is always good news. But, on the other hand, it brings an economic challenge, especially in the current scenario, in which we have a heated economy, a horizon of inflationary pressure and rising interest rates. Last week, former Finance Minister Joaquim Levy even cited low unemployment as “the good problem” of the economy”.
“Of course it is good news to have such low unemployment. But we have people who are busier and earn more. And this ends up increasing inflation”, says Renan Pieri, professor of Economics at the Fundação Getulio Vargas School of Business Administration (EAESP-FGV), in São Paulo.
Inflation is the main concern. This is because, not only do we have a record 102 million workers with jobs, but also because the average real income grew 5.1% in one year, reaching R$3,228, and with the wage bill increasing 8.3% compared to the same period of the previous year.
Paulo Gala, chief economist at Banco Master, recalls that in addition to the Pnad data, the Caged (General Register of Employed and Unemployed), compiled by the Ministry of Labor and Employment, also came out strong, with the creation of 232 thousand vacancies in August. “Caged is over 200 thousand [vagas criadas] some time ago. Another sign of the very heated market, and with salaries rising. This worries the BC.”
On Thursday, the Central Bank released the Quarterly Inflation Report, and Gala highlights the document’s point by saying that disinflation in the cores has stopped, at the same time that monetary policy is in the contractionary field, that is, on an upward trajectory of interest.
Rising interest rates
Inflation – or the risk of it – raises the alarm for interest rates. The president of the Central Bank, Roberto Campos Neto, said on Thursday, 26, that three factors essentially motivated the increase in interest rates, which occurred on September 18: the tight labor market, the upward revision in the rate of growth economy and worsening inflation expectations.
“Tight labor market” is how economists refer to a market without a surplus of labor, with a large part of the working-age population having jobs. With greater competition for workers, there is a great chance of an increase in the average salary paid by employers. And, once again, with an impact on consumption and, consequently, inflation.
“The data shows that the Brazilian economy is booming and, at the same time, that we will have more pressure on inflation, along with the price of electricity. It will be inevitable for the Central Bank to raise interest rates”, believes João Kepler, CEO of Equity Fund Group.
Alexandre Pletes, head of Variable Income at Faz Capital, points to the great challenge that a strong job market currently brings to the Brazilian economy. “This increase in income and economic activity works as a driver for inflation, something that the Central Bank tries to control. The big challenge now is to contain consumption, both that of workers who are earning more, and that of the government, which has increased its spending compared to past cycles.”
It is worth remembering that one of the reasons for the Federal Reserve, the central bank of the United States, to start reducing its interest rates was precisely a heated job market. Financial market traders began betting on a 0.50 percentage point reduction in the September decision after a government report showed that employers hired fewer workers than economists expected in both August and July.
Public accounts
The demand for the government to come to terms with the fiscal issue was reinforced with the most recent data on the labor market. One of the ways to “adjust the inflationary course”, believe the experts consulted by This is Moneyis the mission of the federal government.
“Inflation is far from losing control, but the scenario raises a warning sign. And that’s where the government’s homework comes in. Combining low unemployment with controlled inflation means moving forward with fiscal reform”, says Renan Pieri, from FGV.
This is because, says Piero, the central point of this moment must be good coordination between monetary policy and fiscal policy. “The more the government does its part in fiscal matters, the less the BC has to use the bitter medicine of interest. In the Copom minutes, the relevance of fiscal policy is very clear, so that interest rates can fall again”.
Last Thursday, 26th, Fitch Ratings threw “cold water” on the most recent speech by Finance Minister, Fernando Haddad, defending that risk rating agencies raise Brazil to investment grade, addressing the fiscal issue. According to a Fitch report, Brazil’s current fiscal policy and its effects are not keeping up with the strong performance of the national economy and that challenges for the federal government are expected to persist and grow next year.
In an interview with This is Moneythe former Minister of Finance, Rubens Ricupero, also placed responsibility for interest on the government. “It doesn’t just depend on the BC [os juros]. Lula himself could do more to signal the government’s commitment to reducing spending.” Ricupero added by saying that Brazil needs to develop the same responsibility in the fiscal field that was developed in the monetary field with the creation of the Real Plan.
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