Wed Apr 30, 2014 11:53am

(Reuters) – Tourists visiting Brazil for the World Cup are advised to pack a bathing suit, sunscreen, and a whole lot of cash.

Home to some of the world’s most expensive restaurants and hotels, and with some prices rising more as the opening match approaches, Brazil will shock those visitors whose idea of a tropical paradise is paying $1 for a beachside beer.

Instead, Brazil is often the land of the $10 caipirinha (the sugar cane-based local drink of choice), the $100 risotto and the $1,000-a-night hotel room, prices fueled by many of the same imbalances and government policies that have restrained economic growth in recent years.

Even by European and U.S. standards, prices for basic items are often staggering.

In Sao Paulo, a bustling business hub that is surrounded by some of the country’s largest coffee farms, an espresso often costs twice as much as in Lisbon, says Paulo Duarte, a pharmaceutical consultant who splits time between both cities.

“It’s absurd,” Duarte said. “We’re talking about one country that produces coffee and another that imports it.”

High prices are nothing new in Brazil. The country has a long history of economic instability and runaway inflation, which topped 2,400 percent a year as recently as 1993.

Inflation these days is much more manageable, running at about 6 percent a year, though that is still high by international standards. Sao Paulo, for example, is the most expensive city in the Americas and the 19th most expensive in the world, ahead of New York and London, according to a recent survey by the Mercer consulting firm. Rio is among the world’s 30 most expensive cities.

One reason prices are so steep is because the cost of doing business is so high, thanks to a mind-boggling mix of taxes, import tariffs, bureaucracy and poor infrastructure that can make Brazil a difficult place to operate.

Economists have a name for that: “Custo Brasil,” or “Brazil Cost.” It can make goods manufactured 30 percent more expensive than those produced abroad, according to a study by the industry federation of Rio de Janeiro.

Making matters worse, production costs have climbed in recent years with rising wages and energy prices, while government policies aimed at bolstering household consumption have driven up prices at the cash register.

Even for tourists with some money to burn, creative solutions are often called for.

Dimitar Bogdanov and Simeon Vassilev, a Hungarian couple who visited Rio de Janeiro for the first time early this year, paid the equivalent of $100 for a risotto at one of the city’s chic restaurants. But they decided to alternate their big nights out with simpler spots, and managed to spend “only” $30 at a per-kilo buffet place where you pay by the weight of your serving.

“Some things are way overpriced but some others are cheap compared to Europe,” Bogdanov said, recommending that tourists splurge on Brazil’s famous rubber flip-flops, which can retail for $24 overseas but cost as little as $8 here.



Sometimes, though, there’s no getting around the problem – especially when it comes to the World Cup.

The average hotel cost for the night of the final on July 13 in Rio is 816 reais ($371), according to Trivago, a website that compares prices on over 190 booking websites. One two-star bed and breakfast in Copacabana is charging 2,000 reais ($909) for a cramped, poorly furnished room for that one night.

In Sao Paulo, visitors will pay an average of 621 reais ($282) for lodging on June 12, when Brazil plays Croatia in the opening game.

A one-way flight between the two cities – which are only 269 miles (433 km) apart – takes 50 minutes and costs 549 reais to 1,130 reais ($250-$514), booked on short notice on an average weekday. By comparison, an 80-minute flight between New York and Washington under the same conditions costs as little as $167.

Both sets of costs have their roots in economic problems.

Encouraged by strong housing demand and an abundance of subsidized credit, construction companies in recent years focused mainly on building homes. That left many cities with a growing deficit of hotel rooms, industry experts say.

Similarly, Brazil’s success in boosting its middle class caused domestic air traffic to double over the past five years, while little investment was made in infrastructure. At least five of the 12 World Cup host cities won’t complete the airport expansion projects they promised for the tournament.

But there may be one saving grace.

Brazil’s problems have at least translated into some relief for foreign tourists. The Brazilian real has lost about 11 percent of its value against the dollar during the past year, making the country’s high prices a little more palatable for tourists with hard currency.

($1 = 2.2 Brazilian reais)