Brazil Mulls Network of Big Food Discounts to Boost Lula’s Popularity
(Bloomberg) -- Brazil’s government is weighing measures such as providing reduced-cost food products through a network of stores in an attempt to combat inflation and boost President Luiz Inacio Lula da Silva’s popularity.
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One of the ideas being studied would make the cheaper goods available in regions including poor city outskirts, according to a person with knowledge of the matter. Such a solution could require subsidies, and officials are struggling with how to lower food prices without generating extra spending at a time when investors are skeptical of Lula’s commitment to fiscal responsibility.
An option would be replicating the existing “Popular Pharmacy” program through which the government covers all or part of the costs of some health products, the person said, requesting anonymity because the talks aren’t public. Such discussions, which are still in early stages, gained steam after a Monday cabinet meeting where Lula requested his ministries to come up with solutions to the problem of food inflation.
A meeting between Lula and the ministers of finance, agriculture, and agrarian development, among others, was scheduled for Friday to discuss the matter, although Lula’s office said a network of food discounts isn’t among the proposals under consideration.
Finance Minister Fernando Haddad dismissed talk of subsidies as “just gossip” on Thursday afternoon, telling reporters in Brasilia that there is no need to use fiscal policy to contain food prices.
Lula is growing concerned about the threat to his popularity from soaring prices as he starts the second half of his term. At a cabinet meeting this week, the leftist president asked ministers for measures to soften the impact of inflation on workers. Investors expect the central bank to raise interest rates to 15% this year, with cost-of-living increases seen above the 3% target through 2028.
Swap rates rose to an intraday high on the news of the discussions, with the contract due in January 2026 jumping as much as 13 basis points in afternoon trading.
Annual inflation ended 2024 at 4.83%, above the tolerance range, obligating central bank Governor Gabriel Galipolo to write a public letter explaining why his institution failed to tame price rises. Roughly 45% of Brazilians expect to purchase less over the next six months, according to LatAm Pulse, a survey conducted by AtlasIntel for Bloomberg News and published in January.
Brazil’s supermarket industry association Abras also presented the government with proposals that could indirectly allow companies to lower food costs, such as greater labor contract flexibility and the ability to sell medications that don’t require a prescription, the organization said in a statement.
The major concern among investors is that Lula’s fiscal policy could end up fueling more inflation and force Brazil’s central bank to significantly extend its hikes to borrowing costs that currently sit at 12.25%.
Finance Ministry officials say the 2024 inflation surge was driven by extreme weather such as drought in the north and historic floods in Rio Grande do Sul state, as well as an exchange rate devaluation in the second half of the year.
Other countries that produce agricultural commodities were affected by unexpected weather events, which generated an external supply shock. There has also been an increase in global demand for some specific products, such as meat and coffee, according to the officials.
--With assistance from Maria Eloisa Capurro, Rachel Gamarski, Giovanna Bellotti Azevedo and Franco Dantas.
(Updates with comments from Lula’s office in fourth paragraph.)
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