In September and October of last year, we witnessed something unexpected. After many months of lockdown under fairly strict measures, improved public health metrics allowed for a gradual reopening of the economy, which boosted consumer confidence. Furthermore, following an unforgettable episode in Congress—where some lawmakers put on regrettable spectacles, such as running around like an anime character—the first withdrawal of pension funds had been approved. These withdrawals had begun in August and, according to figures from the Superintendency of Pensions, were expected to exceed US$2,000 million. So far, so normal. But then September arrived, and along with the improved mood, national holidays, and a little extra cash in people’s pockets, consumer spending began to surge. From sneakers to computers, cell phones to paprika, sales of these products rose unexpectedly.

The problem is that the vast majority of companies hadn’t prepared for a situation like this. In fact, since early 2019, imports of consumer goods had been showing negative growth rates, with international trade significantly weakened as a result of the trade war between the U.S. and China (my goodness, what memories—it feels like it was a lifetime ago). The social unrest in October and the pandemic only exacerbated this situation, which peaked in May 2020 with a year-over-year decline of nearly 45%.

Therefore, when demand for products surged unexpectedly, the warehouses were unprepared. And what happens in these kinds of situations occurred—even though some believe it can be curbed with a couple of laws: the market took action. As a result, we saw significant price increases for various products, causing the CPI figures for September and October to show substantial rises—far beyond any consensus estimates and even those made by the Central Bank itself just a few weeks earlier.

Now, with more liquidity in circulation than there was back then—with three withdrawals from pension funds and direct transfers from the government to the majority of the population—it is only natural to fear a similar situation. The Central Bank already indicated this in its recent IPoM, in which it raised its inflation projection for this year to 4.4%, and even went so far as to suggest that the process of monetary normalization could begin sooner rather than later.

However, there is one situation that stands out. Starting in the second half of 2020, the trend in imports began to reverse. In terms of value, in June, imports of consumer goods rose 105% compared to the previous year, with imports of durable goods growing 207%, while those of non-durable goods rose “only” 75%. To name just a few, clothing and footwear rose 106%, computers and other electronic equipment 77%, and new cars a staggering… 456%!

Has this been the reason we haven’t seen an inflationary spiral recently? It’s likely helping to contain pressures, but I wouldn’t rule them out entirely. Let’s remember that these are aggregate data, and products within a category are not necessarily homogeneous. Furthermore, IFE payments began only recently, and their effects may be slow to show up in prices. But one thing is clear: inventories matter.