I’ve officially been demoted from Rooted Journeys co-author to guest contributor. Not because Suzanna said so (she never did), but because it turns out I’m just not very good at motivating myself to actually sit down and write something. But here I am, so vamos-lá.
Generally speaking, it seems that many Americans view Brazil as a chaotic tropical wonderland – think Carnaval, string bikinis, palm trees, samba dancing, bossa nova, favelas, drug lords…you know, all the fun stuff. In reality, one of the most defining features of Brazil as an expat in São Paulo is simply how ridiculously expensive it is. No matter how much you try to stop talking about it, and even more importantly, try to stop converting prices into dollars, it just won’t fade into the background as a simple fact of life. For those of us living it, it’s like a permanent fat lip – the moment you think it’s healing, you bite it again and want to take out your aggression on the old lady walking too slow on the street in front of you. That’s right, it makes you want to push an old lady. It’s that ridiculous. Although, just for the record, I would never actually push an old lady. And the prices here are worse than a fat lip. Maybe that wasn’t quite the right metaphor, but there’s no turning back now. Let’s keep moving.
A couple of recent articles have highlighted some of the effects of this charming Brazilian reality. The cover story a few weeks ago for Veja (a popular weekly magazine in Brazil) was titled Pague Um, Leve Dois, Tres, Quatro…. English translation: Pay for One, Get Two, Three, Four. The lead-off explains further (translated): “The favorable exchange rate alone does not explain the low prices that mesmerize Brazilians who shop in the United States.” To drive home the title, the article cites the happy fact that the cost of an iPhone in Brazil is the highest in the world, leaving shelves for $1,650 (USD equivalent) in Brazil. In the US, the same unlocked iPhone 4S (32GB) goes for $815. That puts it at just over double the price for us lucky brasileiros. But why stop there, it gets better! Asics sneakers that go for around $200 in the US? A cool $457 in the equivalent Brazilian play money. That’s 2.3 times the price. A PlayStation 3 goes for 2.8 times the price. Calvin Klein jeans are 3 times the price and a Guess handbag tops it off at 3.8 times the price. Go Brazil!
These are just random examples, but they do give an indication of general price levels. Not everything comes in at double the price, but it’s fair to say that São Paulo has justly earned its ranking as the 10th most expensive city in the world for expats and the most expensive in the Americas (Mercer Survey). So, you may ask “why”, which we ask ourselves constantly. Of course there is no simple explanation, though the Veja article presents a pretty reasonable set of factors. Here’s a summary:
- Exchange Rate – the Brazilian Real (currency) is about 25% stronger against the dollar than its long-term average making goods more expensive accordingly, especially imports.
- Demand – quite simply, growing demand is outstripping the country’s productive supply capacity. High demand + low supply = high prices.
- Tax Burden – the Brazilian tax burden is 36% on average versus around 25% in the US. The difference is even greater when considering additional taxes on goods Brazil classifies as “superfluous.” Plus, Brazilian import taxes are triple what they are in the US.
- Inflation – while the days of hyper-inflation have passed (hopefully for good), inflation is still significant and widens the price gap over time (6.5% inflation in Brazil last year versus 2% in the US)
- Competition – as a matter of policy, the US government prioritizes competition over protectionism and Brazil vice-versa. For example, whereas the US government made cheap credit available to US auto-makers to help them become more competitive with cheaper Asian imports, Brazil has chosen to simply elevate import taxes to artificially raise prices of the foreign competition.
- Economies of Scale – US companies generally focus on selling more at a lower margin whereas Brazilian companies tend to focus on a small market at a high margin
- Productivity – it’s just not rising fast enough relative to labor costs (due to low unemployment, a lack of qualified labor, insufficient investment, etc.)
The result? Prices that make your eyes pop and a growing class of Brazilian consumers that have become America’s big-spenders. It’s no wonder so many Brazilians take annual shopping trips to Miami and New York – they easily recoup the cost of the trip in savings on their purchases. Brazilians now spend more in the US than visitors from any other country – on average, $5,400 per person per trip in 2010 (article). Japanese tourists came in far behind at number two with $4,300 in spending per person. So next time you see people filling up suitcases with stuff in the mall, try a warm bem-vindo. Good chance they’re our neighbors.
So, please have some patience when you hear us (constantly) complaining about the prices here and be generous with your suitcase space when you come to visit – we’ll be filling it up.
PS – I had a coke and a nice sandwich for lunch today (filet, brie, arugula). No fries or chips or any extras. The tab was R$45. That’s about $26. For a sandwich.