Brazil Considers Low-Cost Food Program to Combat Inflation and Boost Lula’s Popularity
The Brazilian government is exploring measures to address inflation and improve President Luiz Inacio Lula da Silva’s public image, including the provision of subsidized food products through a network of stores.
According to sources, the plan involves making low-cost goods available in impoverished areas on the outskirts of cities. This solution could necessitate subsidies, prompting officials to debate how to reduce food prices without incurring additional spending, particularly given investors’ skepticism about Lula’s commitment to fiscal responsibility.
Officials are considering replicating the existing "Popular Pharmacy" program, in which the government covers some or all of the costs of select healthcare products. The discussions are at an early stage, with Lula scheduled to meet with the ministers of finance, agriculture, and agrarian development on Friday.
Lula is increasingly concerned about the threat to his popularity posed by rising prices as he enters the second half of his term. At a cabinet meeting this week, he urged ministers to implement measures to mitigate the impact of inflation on workers.
Investors anticipate the central bank raising interest rates to 15% this year, with cost-of-living increases exceeding the 3% target through 2028. Swap rates surged intraday on news of the discussions, with the contract due in January 2026 jumping as much as 13 basis points in afternoon trading.
Finance Minister Fernando Haddad dismissed speculation of subsidies as "mere gossip," stating that fiscal policy is not necessary to contain food prices. Annual inflation closed 2024 at 4.83%, exceeding the tolerance range and prompting central bank Governor Gabriel Galipolo to issue a public letter explaining the institution's failure to control price increases.
According to LatAm Pulse, a survey conducted by AtlasIntel for Bloomberg News and published in January, approximately 45% of Brazilians expect to reduce their purchases over the next six months. The Brazilian supermarket industry association, Abras, has also proposed measures that could indirectly lower food costs, such as increased labor contract flexibility and the ability to sell non-prescription medications.
Investors are primarily concerned that Lula's fiscal policy could fuel further inflation, forcing Brazil's central bank to extend its current borrowing cost hikes of 12.25% significantly. Finance Ministry officials attribute the 2024 inflation surge to extreme weather events, currency devaluation, and increased global demand for agricultural commodities.