Rising dollar prices impact the region’s economy

Amid fears of an international recession and internal tensions in Brazil, the financial market had the most turbulent month since the beginning of the covid-19 pandemic. The dollar had its biggest monthly rise; and the stock market, the worst one-month drop in more than two years. This has a direct impact on the region’s economy.

The commercial dollar ended this Thursday (30) sold at R$5.235, up by R$0.042 (+0.81%). The US currency had a day of strong volatility, rising to BRL 5.27 at the beginning of trading, falling to BRL 5.18 in the afternoon and rising again towards the end of trading.

The administrator, economist and specialist in the study of local and regional economy Marco Aurélio Barbosa de Souza explains that the rise in the dollar impacts the region in several ways. On the positive side, it favors sales to the foreign market, as it makes regional products more competitive in the international market.

On the other hand, the devaluation of the real makes imports more expensive, from inputs, raw materials and components necessary for the production process of regional companies, to machinery and equipment, which are essential for increasing production and modernizing the local production structure.

In this context, the rise in the dollar, which increases the cost of production for companies, triggers the pass-through of prices to consumers, further increasing inflation. With Thursday’s performance, the dollar ended June up 10.03%, the highest monthly rise since March 2020, when the price had risen 15.92%. Despite the rise this month, the currency accumulates a 6.11% decline in 2022.

“There are several factors that made the dollar rise in June and show a trend of continuity in the coming months. Among the factors are fears of a global recession and fiscal uncertainties in Brazil.

Economic data from several countries point to a slowdown in the world economy, with the slowdown in global GDP growth in a context in which several Central Banks have increased their basic interest rates to contain the escalation of inflation”, he highlights, saying that in the context of domestic market, there is concern about the fuel PEC, which will further increase the public deficit and have an estimated cost of BRL 40 billion. At the same time, we will have the second consecutive year that the inflation target ceiling has been exceeded.

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