Drastic Commodity Price Hikes Hit Peruvian Working Class

Sharp increases in food, fertilizer, fuel and public transport prices, combined with exchange rate uncertainty and continued high unemployment, are having a devastating effect on the urban and rural working class of Peru, on the students and on the poor. more generally.

Long line of people waiting to enter a bank in Lima [Photo by Victor Idrogo/World Bank]

The higher cost of urea-based fertilizers, a result of the war in Ukraine, increases the cost of farm feed, and a resulting drop in production drives up prices in retail markets. It is estimated that if the war in Ukraine continues, the price of fertilizers could increase by 40% by the end of 2023.

The war in Ukraine also affects the price of energy. At Repsol gas stations, the main fuel supplier in Peru, the pre-pandemic price of 90-octane gasoline as of December 31, 2018 was 4.85 nuevo (new) soles per gallon. On September 4 of this year, it was quoted at 19.95, an increase of 307%, which equates to an astonishing 45.4% per annum.

Following the rise in gasoline prices, public transport fares in Lima, the capital, rose on July 16 from 2.50 to 3.50 nuevo soles, an increase of 40%.

Last month, private public transport companies in Arequipa, Peru’s second most populous city, which carries 800,000 passengers, announced that they would increase the base fare by one sol to 1.40 soles, or a 40% increase day to day.

The daily Peru21 reports that in Arequipa, an average family of four spends a minimum of 168 soles per month on public transport. With the new increase, it would increase to 235 soles, or 22% of the monthly minimum living wage (SMV) of 1,025 soles (265.27 USD).

To get a sense of the true dimensions of the precarious economic situation facing Peruvian workers, for every dollar a worker in New York State earning minimum wage receives, his Peruvian counterpart receives only $11.5 cents.

Although in August there was a slight decrease compared to July, the rate of consumer price inflation remained high. The August monthly report from the Central Reserve Bank of Peru (BCRP) put inflation over the previous 12 months at 8.41%, well above the bank’s 1-3% target . This rate was slightly lower than the 8.5% rate in the United States and the 10.07% rate in Brazil, the Latin American country with the highest rate.

BCRP last week raised its inflation forecast for 2022 and 2023. Speaking at a press conference in Lima, bank chief Julio Velarde said the bank had raised its inflation estimate for 2022 at 7.8% against 6.4% previously and for 2023 at 3 percent from 2.5 percent.

To cope with inflation, the BCRP had set the key rate on July 7 at 6.00%. A year ago, on August 8, 2021, it was only 0.50%.

At that time, the bank was trying to reactivate an economy hit by shutdowns and high unemployment resulting from the pandemic. Since then, the RBC has raised the rate several times. Today, it is not a question of stimulating the economy, but of curbing inflation and above all of preventing wages from rising.

On Friday, the bank raised its key rate to 6.75%, its highest level in 20 years. This is a little less than expected, as September’s inflation rate compared to August’s posted a second slight monthly decline. The 6.75% rate was nonetheless the 14th straight increase in a cycle that pushed borrowing costs up 650 basis points. And the bank stressed that it was not ruling out further interest rate increases based on incoming data.

In addition to trying to control inflation, limit wages and protect the national currency, political instability – that is, country risk – also looms large in rate calculations. The possibility of a mass uprising, after six months of incessant strikes and demonstrations, led the national bourgeoisie to excessive purchases of dollars.

Last Friday, the currency closed at 3.877 nuevo soles per US dollar, which is equivalent to a devaluation of more than 19% since the start of the pandemic, which was quoted at 3.1268 on March 12, 2019. The exchange rate has peaked at 4.1198 nuevo soles per US dollar on October 13 last year. Over the past nine months, it has oscillated between a low of 3.62 and a high of 4.10, oscillating according to the bourgeoisie’s perception of Peruvian risk.

The BCRP’s growth projections reveal the precariousness of the political and economic situation. It revised down its estimates for economic growth for the current year from 3.8 to 3.0 percent for 2022 and from 3.2 to 3.0 percent for 2023.

The downturn is hitting the production of staple foods for the urban and rural working class hard. For example, newspapers report that rice production fell by 7.5% and potato production by 11.73% in July.

Likewise, the production of oil and liquid gas has slowed. Hydrocarbon exploration contracts have been halved compared to 2019, the last pre-pandemic year.

According to the National Institute of Statistics and Informatics (INEI), “During the December 2021-January-February 2022 quarter, the official unemployment rate in the metropolis of Lima – where a third of the national population resides and where economic activity is concentrated – was 8.9 percent, down 5.6 percentage points from the same quarter of 2021 (14.5 percent).” However, compared to the same quarter of 2020 (7.1%), it was 1.8 percentage points higher.

And these figures do not reflect the fact that the share of the labor force trapped in informal jobs exceeds 70%.

But it is the fall in production, partly due to the economic contraction of the pandemic years, and the rise in the price of basic necessities, that has hit the working class hardest. The main factor now is the downturn in the capitalist economy around the world, which has pushed Peru into a technical recession.

Finally, adding to the gloomy economic outlook, the fourth wave of Covid-19, with the Omicron strain, which arrived in June, is now whipping the population.

According to data published by the Ministry of Health (Minsa), the monthly number of deaths in June was 334. It rose to 854 in July, then reached 1,428 in August. In other words, in the space of three months, the mortality rate jumped by 260%.

Since the start of the pandemic, the number of positive cases has risen to 4,131,966 and the death toll to 216,287, representing a mortality rate of 5.23% as of September 18.

These interrelated crises intersect with accusations of corruption by President Pedro Castillo, his family, and government officials, creating a crisis of governability and laying the groundwork for a social and political explosion.

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