Brazil's Crisis Hits Emerging Middle Class

At WSJ, "Brazil’s Economic Crisis Beats the Emerging Middle Class Back Down":

RIO DE JANEIRO—When proper electricity arrived in Santa Marta, a small favela in the shadow of Rio’s Christ the Redeemer statue, longtime resident Cândida Oliveira Silva was happy to get the bill.

For the 52-year-old homemaker, it meant having legal proof of address and “feeling like a citizen” for the first time. But in recent months it has also meant cutting back on all but the most basic expenses. Reduced government subsidies and a drought have raised her bill to about 280 reais ($72) a month, roughly five times what it was a year ago.

“I can’t travel anymore, I can’t afford to eat at even a modest restaurant,” Ms. Silva said. Rising inflation and Brazil’s plummeting currency have quashed any hopes of visiting her daughter in San Francisco.

Ms. Silva’s struggle to maintain her standard of living amid rising prices shows how a spiraling economic crisis has pushed Brazil’s emerging middle class to the brink.

Urban unemployment rose to 7.6% in September, tied with August for the highest rate in more than five years. Economists on average expect gross domestic product will shrink 3.1% this year and 1.9% next year, according to the Central Bank of Brazil’s latest weekly survey. Inflation approaching 10% has forced the poor to stop buying meat and the central bank to ratchet up interest rates. A disorganized effort by the government to stem a widening budget deficit has resulted in painful tax increases, further crimping family budgets.

Experts say it is hard to estimate how many people are at risk of falling down Brazil’s social ladder, as official data aren’t yet available. But with wages rising less than inflation, around 35 million members of Brazil’s lower middle class are vulnerable, says Maurício Prado, a partner at research firm Plano CDE.

“They have low education and low job formalization,” he said. “There is confluence of negative factors.”

The situation is threatening to derail what Brazilian leaders have extolled as a transformation of the country’s economy and society. Long counted among the world’s most unequal nations, Brazil made significant progress in the past decade toward reducing its gaping income disparity, authorities say.

Strong prices for commodity exports stuffed public coffers with money that was used to weave a social safety net, including a cash-transfer program targeting nearly 14 million impoverished families. Minimum-wage increases averaging more than 11% a year since 2003 transferred more wealth toward the bottom of the spectrum.

Between 2003 and 2013, Brazil’s median household income grew 87% in real terms, compared with a 30% rise in per capita gross domestic product, says Marcelo Neri, an economist who wrote a book on the “new middle class” and served as President Dilma Rousseff’s strategic-affairs minister.

“People who were left behind—uneducated people, people in the northeast and rural areas, poor people, black people, domestic workers, informal workers—these people grew at a much faster rate than the country as a whole,” Mr. Neri said...

Remember, Rousseff’s a Marxist. I guess the withering away of the state toward the communist utopia's going to have to wait.

But keep reading.