CONFESSIONS OF AN INFLATION ADDICT

Christina Lamb explains how to survive in a country where prices have risen 200 billion-fold in a generation Rio de Janeiro I WAS instructed by The Latin American Handbook to shun iced drinks, salads and roadside snacks in order to avoid being struck down by hepatitis and cholera. But after three mercifully sickness-free years living in Brazil, I find myself suffering from a chronic complaint about which nobody warned me: I have become an inflation addict.

I first realised that all was not well when I took an acquaintance to lunch, and dis- covered that the menu had reference num- bers instead of prices. Supplied separately was a hastily typed sheet, listing not the day's specials but the day's prices. On pay- ing the bill, I appeared to get back more change than I had paid by several factors of ten. Seeing my Alice in Wonderland- like bemusement at the huge wad of notes, my companion explained that Brazilian consumer prices had risen 200 billion-fold since 1960. In order to keep up, the cur- rency had changed several times in the previous years, losing several noughts. Yet there were still two previous currencies in circulation, worth 1,000 times less than their face value — which was why the change appeared to amount to more than the bill.

Since then, I have found that living in a country where prices rise more in three days then they do in a whole year in Britain has a profound effect on my behaviour. Overseas guests at my house are baffled to find us frequently speaking in acronyms. A typical breakfast table con- versation might run as follows: Me: 'I see the TR is up to 34.'

My partner: `Elmmm . . . the Unit's not bad, though BTNs are high.'

This is not some strange code, but refers to the many official inflation indices, which readjust the prices of everything from school fees to construction materials. They appear every morning in the newspapers, along with 13 different measures of infla- tion, and provide fodder for small talk throughout the day.

In the taxi on the way to the office, for example, the driver chats knowledgeably about interbank rates, and muses over whether it is better to pay his car tax in one instalment or ten. Then we discuss the cab-fare. It may be only $2, but chances are I'll pay by cheque. I carry almost no cash, as every day that it lingers in my purse it loses the equivalent of more than a month's interest in a British building society. Instead, like most Brazilians, I keep my money invested in the so-called 'overnight' fund in the bank, and use cheques like cash. The banking system has become so efficient that cheques are cleared the same day — try getting the NatWest to do that!

Once at work, it is a constant race against time to manage my finances. Bills cannot simply be paid in Brazil — they must be paid on the last possible day so as not to lose any interest on the money in the bank. Air tickets must be bought in the first few days of the month because the prices usually go up on the 5th, though the airlines occasionally fool us with an early increase. Shopping also takes on new dimensions. The most difficult decision is not what to buy but how to pay. For any- thing from clothes to stationery, I am con- fronted with prices that depend on whether I pay in cash — in which case there is a dis- count — or in two or three monthly parcels.

Alternatively, I can leave predated cheques with the shop and hope they don't deposit them early. It's best to shop in the evening after the banks have closed, in order to pay that day's prices but have the cheques clear only the next day. My eyes light up if I see a credit-card sign in the window — a month of free credit means a discount of 33 per cent (monthly inflation), though many shops get round this by charg- ing 40 per cent more for customers who use credit cards. As for restaurants, almost none of them accept plastic. I'll never for- get the face of a top American bank execu- tive who took me out for a slap-up dinner and then presented his platinum American Express only to have it handed back. Had it not been for my cheque-book we might have ended up doing the dishes.

Every day I have to perform arithmetical acrobatics. Calculators are rendered use- less in a country where there are 110,000 cruzeiros to the pound, the lowest wage is 5 million, and even lunch in McDonald's can set one back a cool million. Pity the super- market assistants who have to ring up pur- chases a few at a time, and then add the totals on paper, because the numbers do not fit on the till.

This month, a new currency was intro- duced, the fourth since 1986; another three zeros were knocked off to make life easier. The name of this currency, the 'real cruzeiro,' caused a few sniggers, particular- ly as it was born thanks to a sudden whim of Brazil's mercurial President, who neglected to inform the Central Bank pres- ident to print new notes. Instead, we are having to divide the old ones by a thou- sand; the main television channels are warning that this does not mean that prices are cheaper. Joelmir Beting, Brazilian tele- vision's economic commentator, points out that if the cruzeiro had not had 12 zeros removed since coming into existence, a box of matches would now cost 5 trillion.

The acute nature of inflation addiction only became clear to me on a recent holi- day in England. Used to spending millions, prices seemed ridiculously low, and I found myself spending pounds as if they were going out of fashion. I unable to resist hoarding large quantities of soap and boxes of teabags, unable to believe that prices do not change daily in normal countries. The ticket clerk at Carshalton Beeches station was astonished when, despite buying the same travel card every day for 20 days, I asked the price each time. I would go to the cash-point machine three times on the same day, withdrawing five pounds at a time, rather than risk carrying sums of money that could devalue in my pocket.

My addiction is known in Brazil as the 'inflationary culture', and it is a common ailment. The half of the population that is

under 20 has only ever known three-figure inflation; young people are therefore as likely to chat about the best deposit certifi- cates available as they are to discuss Juras- sic Park. No wonder the IMF includes Brazilians on their team to Moscow, in order to advise the Russians against mak- ing the same mistakes.

It is hard for people outside to imagine living in this situation, let alone doing busi- ness, but many Brazilian companies are addicted as well. These include not only all those consultancies generating inflation indices, but ordinary managers too. The trick is to obtain the longest possible credit period to pay suppliers, while making buy- ers pay up as fast as possible. One friend of mine who owns a chain of supermarkets sells items for less than he pays: 'A suppli- er sells me toys, say, for 100 cruzeiros per unit, but gives me 30 days to pay. I sell them for 90 but within ten days and then invest the cash, getting the bank interest which is worth far more than any profit I could get on sales,' he explains.

Brazil is perhaps the only country in the world where the law of supply and demand simply does not work. Manufacturers, mostly cartels or oligopolies, take advan- tage of the fact that in very high inflation, no one ever knows whether something is expensive or cheap. When I do my weekly shopping, I have absolutely no idea how much the total will be, even though my purchases rarely vary. It is no good using the dollar as reference, as prices do not follow. This year, for example, inflation so far has been 500 per cent, devaluation more or less the same, but the price of but- ter has risen 883 per cent. Last month, black beans went up 100 per cent, com- pared to inflation of 31 per cent. At my local supermarket, a packet of butter cur- rently costs more than a kilo of best rump steak, and a set of six glasses is less than the cheapest toothbrush.

The inflationary addiction has seen off four finance ministers in the last year and number five is looking shaky. His task is difficult: not only must he convince people to stop automatic price adjustments, but if he succeeds, no one will be grateful. On the few occasions in the past when govern- ments have briefly reduced inflation to monthly single figures, people complained that the interest on their savings accounts had been slashed, not accepting that in real terms it was worth more.

One consolation for the Brazilians is that their chances of ending up on a bank note is far higher than in any other nation. So many currencies have been printed that the mint long ago exhausted its supply of famous Brazilians, recently resorting in desperation to Amazonian fauna and flora. Fortunately, this source is unlikely to run dry: there are more than 2,000 varieties of fish alone.

Christina Lamb is the Financial Times cor- respondent in Brazil