As the 2016 Rio De Janeiro Olympics loom, Brazil finds itself in the midst of an inflation crisis. At a staggering rate of 9.56 percent, inflation in the South American nation is higher than it has been in 12 years. Brazil has not seen such a level since November 2003. This stark increase highlights one of the main problems facing Latin America’s largest economy.

Although the rising cost of electricity has likely played a role in the increasing inflation rate, the main reason behind the economic slump is a lessening demand for Brazilian products. China plays a major role as one of the nation’s consumers, but the Asian giant is suffering an economic slowdown as well. Dwindling demand for commodities from the Chinese is a central cause of Brazil’s economic woes.

Extremely fast price increases and the depreciation of the Brazilian real versus the U.S. dollar have opened the door for the country’s central bank to raise interest rates substantially. To combat rising prices, the central bank has raised interest rates to 14.25 percent. This number is among the highest of major world economies. Officials at the bank hope that this raise will help the country reach a target inflation rate of 4.5 percent.

However, the outlook is bleak. Brazil’s economy is projected to shrink 1.5 percent, according to the International Monetary Fund. Current statistics show the Brazilian economy ranked seventh in the world.

Dilma Rousseff, the president of Brazil, is actively trying to cut the country’s deficit. Rousseff supports several measures to both cut spending and raise taxes in hopes to get the country back on its feet. Facing fiscal setbacks and possible impeachment, however, Rousseff’s political influence is at a low point and her actions may be in vain.

Although high inflation in Brazil affects poor and rich alike, those living below the poverty line are being hit particularly hard. Long known as a nation with a shocking income gap, there is little sign that this discrepancy will improve in the near future. The poor find it difficult to strive in a prospering economy, let alone one that is dramatically faltering.

– Katie Pickle

Sources: BBC, Wall Street Journal
Photo: Flickr