Real high

When Brazilians kissed inflation goodbye last year they have also entered a dangerous level of high prices that only very slowly is coming down. These days, almost everything is more expensive in Brazil than in any other place on earth. Be it a medical consultation, an electronic gadget, a computer software, a pair of jeans or a dozen bananas.

Carlos Emmanuel da Fonseca Barreto

In July 1994, a new currency was established in Brazil, the fourth monetary unit change in 10 years. The Real received a warm welcome from all Brazilians, and was able to lower inflation from a scary 50% a month to a present 2% monthly level. One and a half years later, an optimistic government expects inflation in 1996 to reach the maximum yearly rate of 15%.

However, the dream of the real becoming a hard currency is far from reality. Today, Brazilians are experiencing a nightmare of outrageous prices for some goods and services: like clothing, food, electronic products, plumber, rent and doctors. Even though inflation has dropped, prices have been unbelievably high. The real introduced Brazil into the developed world with dollar linked prices (right now 0.95 reais = $1). While the country has a $ 3,400 per capita income, however, its prices exceed countries with per capita income above $15,000.

The discrepancy in prices, in a land where raw materials are abundant, is easily seen in food. The famous feijoada a national dish made out of pork and black beans at the Rubaiyat restaurant in São Paulo, costs 35 reais, a 150 percent price hike compared to last year's 14 reais. There is no sense of value among the population. Thirty five reais is enough to buy two pigs of 30 lbs each and 10 lbs of black beans. The amount of goods purchased is enough to make feijoada for 25 people.

In another example, in the restaurant Arlecchino in Rio de Janeiro, a salt water fish filet dish costs 22 reais, a 975 percent price increase from the time the fish is caught. Now, the entire fish is sold by any fisherman for about 2 reais to supermarkets and the supermarkets sell them for 13 reais to the people. It is amazing when you consider that in Paris, one of the most prestigious restaurants in Montparnasse, the Coupole, offers the "menu du garçon" a choice between an appetizer and a main dish or a main dish and a dessert for 20 reais.

Another ridiculous case in point is Rio's sophisticated Italian restaurant Da Brambini which increased the price of its most famous dish tortellini with mushrooms by 70%, while eggs and flour, the main ingredients in this dish, had their prices lowered by 30%. The only explanation for such exorbitant prices is the inflationary expectation ingrained in every Brazilian.

After years of dealing with worthless cents, Brazilians got used to throw away their coins. Some haven't quite grasped the extraneous idea that a bus ride cost less than one real and that is possible to buy a liter of gasoline with 54 centavos. Prices for goods and services tend to adjust from real to real rather than just a few centavos at a time.

During periods of high inflation, Brazilians used to sweep coins under the carpet, throw them on the streets and cast coins into lakes, fountains and in the ocean praying for better times to come. This habit of neglecting the use of cents is creating a false idea of a hard currency.

In any civilized commercial center, the customer is very important. In Brazil, many businessmen ignore this fundamental rule. Some entrepreneurs still believe that the best is to sell products for the highest price they can get. This practice of high profits annihilates productivity, efficiency and competition. The inflationary mentality plus a closed market to foreign competitors create the perfect environment for high prices.

Brazilian entrepreneurs are afraid of working with low profit margins and gaining according to the concept of economy of scale a high value return due to high quantity sales. They do not understand that the problem is losing customers. The only way out is to open the economy to foreign products and force competition.

Prices on products can be controlled through imports and other mechanisms, but what to do with services? How can a country import doctors, plumbers, car washers? An electrician in Belo Horizonte charges 150 reais per hour, a dermatologist in Curitiba asks 250 reais per visit and religious services in Rio de Janeiro cost 960 reais. These services experienced adjustments of 70, 50 and 91 percent respectively within a year. In São Paulo, it costs $39 to wash a car, while the same service in Washington DC goes for $7 and for $8 in Paris.

Marisa Monte, a famous Brazilian singer, in a recent concert in Rio de Janeiro charged $42 for tickets while her concert last year in the House of Blues, in Los Angeles, cost only $20. Brazilians have to pay more for their culture, products and services in Brazil than outside the country. A Brazilian papaya costs $3.40 in Paris, but $3.86 in Rio. An imported Brazilian compact disc in New York costs $12.50 and $25 in São Paulo, a Brazilian movie in Bonn, Germany, can be seen for $5 and for $8.50 in Recife. While a Brazilian dentist in Lisbon charges $38 for a filling, his Brazilian colleague in Curitiba, Paraná, wants $ 94 for the same job.

The same phenomenon occurred in other countries while trying to stabilize their economies, among them Argentina, Chile and Israel. There was a time when Buenos Aires was the most expensive city in the world to live. Today, any major Brazilian city can beat the Argentinean capital.

The end to these price discrepancies will only occur when equilibrium is reached between supply and demand. The consumption binge that euphoric Brazilians have embarked on due to the false impression that they now have a hard currency will have to decline. Moreover, Brazilians will have to learn how to bargain and how to buy only what is necessary.

Empty your wallet

It's a hold-up

Prices in Rio

1 bedroom rent $730

Vacuum cleaner $132

Nylon backpack $50

Ford Escort GT. $24,823

Electric mixer $87

Levi's 501 jeans $104

The simplest stove $320

The simplest washer $499

20" color TV $447

Tennis Reebok $94

Sea food spaghetti $23

Steak and fries $21

Daily rental car $75

Blender $57

Movie ticket $8

Compact disc $25

Freezer 2 doors $1,125

Ford Fiesta $16,188

Plumber per hour $70

Hair cut $50

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