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The Killer Inflation

Summary: I lived through 100% annual inflation in Brazil during the early 1980s.  This is how it actually feels for a high school student.

The Killer Inflation

By James H. Choi
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Among the experiences I had in Brazil living there from the late 1970s to the early 1980s, the inflation looms very large in my recollection.  In fact, looking back now, I think it was closer to a trauma than an experience.  The effect of having severe inflation, which reached 100 percent per year when I was living there, and then got even higher after I left, was that my memory of the prices of anything is a blur.  I routinely bought many everyday things such as notebooks and bread; there were many things that I had coveted for a long time and then finally purchased (such as my electric guitar).  But I do not have any recollection of the prices, not even the older magnitude, I do not remember if it was a 1,000 cruzeiros or 10,000 cruzeiros or 100 cruzeiros.  I just don’t even have a ballpark figure because during my stay, the price swept all up and probably went up tenfold or more (even that is not clear in my memory) during my time.

Having 100 percent annual inflation makes the whole conversation surreal.  For example, suppose you see your friend’s guitar and want to buy the same one, and so you ask, “How much was that?”  He says, “x Cruzeiros”  And then the next question has to be, “When did you buy it?”  Without that, that price is meaningless.  If it was one year ago, you have to double the price.  If it was two years ago, you have to quadruple it.  If it was 6 months ago, you multiply by a square root of two.  You get to learn the geometric sequence quickly, because otherwise there’s no way to learn even the ballpark price of anything.

In such situations and such an economy, cash is the worst thing you can hold in your hand.  It’s like ice cream on a summer day: Literally, it’s melting away.  So if you get any cash for any reason, the first thing you do is buy something you will eventually need before the prices go up.  In fact, the price change had reached the point that taxi drivers could not update the meter frequently enough.  They had a printout of a conversion chart dangling on the side, so when the meter is showing a certain amount, you had to look at the chart and pay some other inflation-adjusted price of the day.

At that time, Brazil didn’t have bar code scanners in the supermarket, so they had the price tags on every item.  As the hyperinflation soared, it got to the point that they were upping the prices on the supermarket items daily.  There was a crowd ahead, not behind, of that stock boy pricing the items, because one could buy the same item before the price is adjusted for the information.

Borrowing money or lending something to friends was tricky because if you borrowed ten cruzeiros, it’s not clear how much you would have to pay back a week later, never mind a month later.  Just as businesses, some of us resorted to American dollar to measure the actual value although none of us were using that currency.

At that time, I wanted to buy an electric guitar, and I was saving up for it.  And I remember that I just could not reach it.  As soon as I could pile up just enough money to get the guitar, then the price moved again and again.  It leads you to despair.

Postal service, by law, could not change its rate during the year.  So it was stuck at the same price for some time.  I recall the postal rate becoming so cheap that it felt like you could send packages for 30 cents or something like that (I don’t remember even a ball park figure).  The postage went up by more than 100% when the new year’s day came around.  I remember having dashed to send everything not because I wanted the season’s greetings to arrive on time, but because I had to send before the price more than doubled overnight.

My high school, Colégio Bandeirantes, used to have this payment brochure that you had to take and pay at the bank.  But they had to give up on it.  They could no longer predict what next year’s tuition was going to be.  They issued new inflation-adjusted monthly tuition each month.  And students had to attend without knowing what the total tuition was going to end up being.

Once you get used this kind of shifting ground, solid ground looks strange.  At the time, my friend and I were looking at a Japanese guitar magazine.  We were looking at one model name something like Yamaha 2000.   We could not believe it when we found out that the model number was actually the price in Yen.  In Brazil the price would not last two weeks, tops.

http://dl.dropbox.com/u/6378458/Column/Info/English/SpecialEvents.gifAll of us, including myself, who lived through that period developed a habit of just “dumping” any cash in our hand before it loses value.  In my case, this habit came back to bite me.  When I came to the United States, as soon as I got a few hundred dollars, I bought a camera lens that I always wanted to get.  So far so good.  But a month later I found out the price went down.  That came as such a shock to me.  How can any price ever go down?  I should have been happy, I guess, that I was no longer being buffeted by this hyperinflation left and right.  I nonetheless felt so ripped off, I still feel that pain and the scar from those inflation years whenever I look at that lens I over paid.

It took many years for Brazil to tame that inflation.  I don’t know the details because it all happened after I left.  It went through different currencies.  At the time I was there, it was cruzeiro. Then came cruzados.  Then the cruzeiro came back, and then now it’s the real.  Each time the currency changed, they dropped a few zeros at the end to keep the numbers tractable.  The picture above is the one cruzeiro note, the currency I used when I lived in Brazil.  Ah, coins disappeared even while I was there because it’s metal value became higher than its nominal value, i.e., you get more money by melting it than spending it.

So when I hear in the news the inflation figures of a single-digit in the United States, I find the news very assuring.  And when I hear in some other countries experiencing high inflation, I feel their pain.  I know from experience that killer inflation hits the poor the hardest.  Those who have properties can enjoy their property values inflating along with the inflation, but for those who have nothing — as it was the case for me back then — this was a horrible time to live because the wage never keeps up with the inflation, although the price of necessities (except for the postal service) always do.

At the time of this writing, Europe is going through its own currency crisis, and the solution is being complicated by Germany’s insistence on not printing money — because they are so afraid of the inflation.  If the 100 percent inflation was enough to  traumatize me like this, I cannot even imagine how the Germans — who have gone through some astronomical inflation, something along the lines of a million percent per year — would feel.  I can understand that the Germans have something almost like an allergic, unconditional avoidance of just anything that would resemble anything like inflation.

It has been decades since left Brazil and the killer inflation.  Brazil has changed a great deal since then as well.  Although my friends used to joke that “Brazil is a country of the future and it will always be,” the joke was proven wrong:  The future came.  Brazil now is a formidable world power in every aspect.  Killer inflation is a living, but distant, memory for people of my generation.


Categories: My Life in Brazil
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