San José State University
Department of Economics

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Thayer Watkins
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The Hyperinflation in Brazil, 1980-1994

Brazil once was plagued by chronic inflation which turned into hyperinflation. The source of this inflation was the expansion of the money supply. The government financed its operation and its development projects not out of taxes or borrowing funds but by simply creating money. Here is the results of that policy:

Price Levels in Brazil, 1980 to 1997
YearConsumer Price Index
19804
19818
198216
198338
1984111
1985362
1986895
19872,940
198821,435
1989328,113
1990100,000,000
1991500,000,000
19925,600,000,000
1993113,600,000,000
19942,472,400,000,000
19954,104,400,000,000
19964,751,200,000,000
19975,080,300,000,000
Source: IMF Financial Statistics

From 1980 when the IMF price level series began to 1995 the price level increased by a factor of 1.0 trillion. That which cost 1.0 Real in 1980 cost 1.0 trillion Reais in 1997. Although the price levels in the late 1990's were at astronomical levels compared to 1980 the rates of inflation in those years were not the extreme cases. In fact, as the rates of inflation shown below indicate the hyperinflation had moderated into ordinary inflation.

Rates of Inflation in Brazil, 1981 to 1997
YearRate of Inflation
1981100%
1982100%
1983138%
1984192%
1985226%
1986147%
1987228%
1988629%
19891,430%
199030,377%
1991400%
19921,020%
19931,929%
19942,076%
199566%
199616%
19977%

The following statistics show the expansion of the money supply in Brazil over the period of the hyperinflation. There was a corresponding inflation in the nominal GDP. The computed velocities of money do not seem to make much sense in terms of the expected response of the public to the inflation but that is probably due to the limited accuracy of the statistics. It is hard to compile accurate statistics during a period in which prices are changing so rapidly.

Money and GDP in Brazil, 1970 to 1995
yearGDP
(millions
Reais/yr)
Money Supply
(millions
Reais)
Income
Velocity
(per year)
19860.0010.000275.0
19870.0040.00085.0
19880.0310.0132.4
19890.4000.211.9
199011.5002.94.0
199160212.9
19926413651.8
199314,09711,0921.3
1994349,505145,5192.4
1995646,192191,9953.4
1996778,820215,3973.6
1997865,919254,9913.5
Source: IMF Financial Statistics

The relevant statistics for the period are the levels of real GDP and real percapita GDP.

Real GDP, Population and GDP percapita in Brazil, 1980-1996
YearReal GDP
1990 Prices
(millions
Reais/yr)
Population
(millions)
Percapita
GDP
1990
Reais
19809250121.2976
19818858124.0771
19828931
19838669129.7769
19849220132.6670
19859914133.5674
198610608134.6579
198710966137.2780
198810960139.8278
198911401142.3180
199011500144.7279
199111599147.0779
199211500149.3677
199312194151.5780
199412789153.7383
199513284155.8286
199613681157.8787
Source: IMF Financial Statistics

During the hyperinflation the real GDP did not decline but it was more or less stagnate and good barely keep up with population growth. Once the hyperinflation was controlled the economy began to achieve real growth and moderate increase in percapita real GDP.

(To be continued.)


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