Brazil living costs are extremely expensive, especially for foreigners.

Front page of Epoca magazine’s September 2011 article “Why is Brazil so expensive” shows data on the cost of cars in Brazil compared with other countries, costing twice the price in Brazil compared with the US.

Front page of March 2012 edition of Brazil’s Veja magazine: “Why Brazil has the most expensive iPhone in the world” presented benchmarks of everyday products (shoes, jeans, electronics) in Brazil which cost 2 to 4 times the price of the US.

Veja Journalist Ricardo Setti has published several articles on “Custo Brazil”, from the comparison of cargo from China to Brazil (17,000km) and the 77km trip from Campinas to São Paulo costing the same, to the cost of bananas being higher in São Paulo than New York city,

I’ll never forget when my friends from Bahia (north-east Brazil) visited London and called me up amazed that rice and beans was cheaper in the supermarket in London than in Bahia… Crazy!

Here are the main reasons why Brazil has become so expensive.

1) Taxes: Brazil taxes every part of the value chain so by the time consumer’s receive the product, it has been taxes various times. It’s quite a challenge to figure out the total value of tax. For cars, federal and state taxes count for 42% of the end-consumer price. For imported Nike sneakers it’s as much as 66% of the consumer price.

2) Inflation: Brazil has among the highest inflation in the world according to the World Bank at 6.63% in 2011. However, the real rate of inflation in cities like Rio and São Paulo is even higher.

3) Oligopolies: Brazil is full of them from B2W and Grupo Pão de Açucar in retail to Globo in Media. Distribution channels are so tightly guarded by a handful of companies, which has a big effect on what Brazilians buy. With such bargaining power, it’s really hard for smaller enterprises to get and stimulate competition.

4) Culture: Brazil is particularly expensive to buy brands in but none-the-less Brazilians love brands. It’s a status symbol for many Brazilians and an opportunity to show off as part of the “elite”.

5) Exchange rate: Brazil was relatively shielded from the recent financial crisis, benefiting from strong internal demand and a lower debt leverage. Therefore, while other countries stopped growing, Brazil maintained high growth and an attractive investment proposition.

6) Bad legislation: In Brazil, it’s a federal law that public cultural events have a 50% discount for students. Not surprisingly, counterfeit student IDs are commonplace and the price of events increased by up to 80% to compensate, according to one study.

7) Export parity: Import taxes are higher than most countries with an average import duty of 14%. Many consumer products command a 100% tax rate. Therefore, the cost of foreign imports often sets the price of products in some markets.

8) Low transparency: Many markets are still largely informal and transactions happen privately. Take real estate in Rio de Janeiro for example. Many properties to rent or buy never come on to formal market places and are sold word of mouth. This makes there appear to be less supply than there really is and increases prices.

9) “Interest-free” financing on consumer goods: Go into any non-food retail outlet and you will common see payment available in 10 interest free instalments. Even if you pay up-front, you are usually subsidising this expensive form of subsidizing.

10) Higher credit card transaction fees: The credit card transaction fees are twice the price in Brazil (around 3-5%). This is due to a complex and bureaucratic banking and tax system and higher indice of credit card fraud. These costs are passed on to the end-consumer.

11) Margins: One of the reasons the Groupon model took off so strongly in Brazil is that margins are so high. Even with 75% reduction in price, many high end restaurants and services made a profit on the daily deal.