A new era of economic data? Pre verses Post 2007 in Brazil.

I was looking at the chart of Brazilian economic data since the Real Plan. Here it is:

Check out the Selic rate both before and after 2007.

Do you see anything? I noticed that is the first point in time the Selic has never exceeded 15%. Interesting…

It led me to perform some more analysis.

Now let’s see the chart with the ‘real’ return of the Selic. That is, the return after deducting inflation.

I’ve added a handy set of boxes to delineate the before 2007 and after 2007 period.

Did you know the average ‘real’ rate of return (Selic return minus inflation), was 15.58% from 1995-2006?

Do you know what it has been from 2007-2023, after the last instance of a 15%+ Selic return? 3.96%

That’s a big difference! It’s still great as compared to many developed market economies, however, if you’re running retirement portfolio simulations (here) you may want to consider excluding years prior to 2007.

It makes sense. The Real Plan was used to switch currencies and get Brazil out of hyperinflation. It worked great, from what I can tell. However just following the plan’s implementation there was (very likely) still considerable instability requiring higher central bank rates. Further, the central bank was likely trying to get a feel for how the economy handles rates, and therefore may have overshot the interest rate. I’m obviously just theorizing, but definitely something to consider.

Just for fun, I ran the same analysis on the Ibovespa return. I used the same sets of years. I didn’t specifically notice anything in the data, but the results are compelling!

Let’s see the data:

Notice the column to the right. It’s the real return of the Ibovespa index. That is the return of the index, minus inflation (IPCA).

Do you know what the average ‘real’ return was from 1995 – 2006? 21.92%

Do you know what the real’ return has been from 2007-2023? The average is 4.46%.

Wow. That is strange and interesting. It also means that for whatever reason 2007-2023 may be a distinct set of economic data. It may be completely meaningless as well.

I am not an economist. I did not associate these years with any real economic events. I am just some guy on the internet. I’ve been looking at this for only a few hours over the past couple of days.

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Now having said all that, I want to learn more and I’m sure the community does as well.

Can anyone please provide any information, or their analysis, (in the comments) which may explain this? Was 2007 (or near that year) a distinct economic period in Brazil? A recession perhaps? Was there a commodities boom at some point? Political change?

Please comment below.

Also, if you’ve use the Portfolio Withdrawal Calculator, for Brazil try to run your numbers again using only 2007-2023 years. If you’re not sure how to do that check this post on Retirement Calculator Update! (I’ve noticed a bug that occurs when you add a ‘later income’, which I am in the process of fixing. It can cause your portfolio to go to zero, then bounce back up after your ‘Later income’)

-Sirsandals

One more thing. Here’s the data I used in a table so you can copy and paste, if desired:

Year	Average Selic	Ibovespa Return	IPCA	Real Selic Return	Real Ibov return
1995	0.5310	-0.0130	0.2241	0.3069	-0.2371
1996	0.2730	0.6380	0.0956	0.1774	0.5424
1997	0.2460	0.4480	0.0522	0.1938	0.3958
1998	0.2870	-0.3350	0.0166	0.2704	-0.3516
1999	0.2550	1.5190	0.0894	0.1656	1.4296
2000	0.1740	-0.1070	0.0597	0.1143	-0.1667
2001	0.1720	-0.1100	0.0767	0.0953	-0.1867
2002	0.1910	-0.1700	0.1253	0.0657	-0.2953
2003	0.2330	0.9730	0.0930	0.1400	0.8800
2004	0.1620	0.1780	0.0760	0.0860	0.1020
2005	0.1910	0.2770	0.0569	0.1341	0.2201
2006	0.1510	0.3290	0.0314	0.1196	0.2976
2007	0.1180	0.4370	0.0445	0.0735	0.3925
2008	0.1240	-0.4120	0.0590	0.0650	-0.4710
2009	0.0990	0.8270	0.0431	0.0559	0.7839
2010	0.0970	0.0100	0.0590	0.0380	-0.0490
2011	0.1160	-0.1810	0.0650	0.0510	-0.2460
2012	0.0850	0.0740	0.0583	0.0267	0.0157
2013	0.0820	-0.1550	0.0591	0.0229	-0.2141
2014	0.1090	-0.0290	0.0640	0.0450	-0.0930
2015	0.1320	-0.1330	0.1067	0.0253	-0.2397
2016	0.1400	0.3890	0.0628	0.0772	0.3262
2017	0.1000	0.2690	0.0294	0.0706	0.2396
2018	0.0640	0.1500	0.0375	0.0265	0.1125
2019	0.0590	0.3160	0.0431	0.0159	0.2729
2020	0.0280	0.0292	0.0452	-0.0172	-0.0160
2021	0.0440	-0.1193	0.1006	-0.0566	-0.2199
2022	0.1240	0.0469	0.0579	0.0661	-0.0110
2023	0.1330	0.2200	0.0462	0.0868	0.1738

3 responses to “A new era of economic data? Pre verses Post 2007 in Brazil.”

Renato

April 7, 2024

hey son, it seems you used just a minus calculation to come up with your real return rates. Please use the correct formula for that.
Conclusions are great though.
1. Sirsandals
  
  April 8, 2024
  
  Thank you Renato! You’re correct, I simply subtracted the inflation rate from the rates of return. Having said that, I also recalculated the ‘real’ return using this formula and came up with the same result: Real_Return = ((Amount_Invested * (1 + Return)) – (Amount_Invested * (1+ Inflation))) / Amount_Invested. For instance, if you take the numbers for 1995 to calculate the real return of the Selic I would do this: 0.3069 = ((100 * (1 + .0531)) – (100 * (1 + 0.2241)) / 100
  Is there another way I am missing?
  I doublechecked the internet and it seem simply subtracting the return from inflation is the accepted method. Check this link for details. https://www.alphamap.com/blog/nominal-returns-vs-real-returns-what-they-are-and-how-to-calculate-them#:~:text=You%20can%20calculate%20the%20real,rate%20of%20return%20is%206%25.
  
  Thanks for commenting!
Safe withdrawal rate in Brazil: Failure points – Sirsandals Adventures

April 10, 2024

[…] change of success! But as you may recall, in our last post on A new era of economic data? Pre verses Post 2007 in Brazil. we explore the possibility that the early years following the Real Plan may represent a different […]