If the state-run company approves distribution of retained dividends, government could receive about R$32.6bn
06/18/2024
Move may pave the way for Petrobras to decide on distribution of R$21.9 billion in extraordinary dividends from 2023 retained as capital reserve — Foto: Leo Pinheiro/Valor
Petrobras’s board of directors approved on Monday the payment of R$19.8 billion related to a negotiated agreement with Brazil’s Federal Revenue and the Attorney General’s Office of the National Treasury (PGFN) in ongoing cases at the Administrative Council of Tax Appeals (CARF). The board held an extraordinary meeting to vote on ending the company’s disputes with CARF over remittances abroad for chartering (a type of leasing) of oil exploration vessels. This measure may pave the way for the state-run oil company to decide, before December, on the distribution of R$21.9 billion in extraordinary dividends from 2023 retained as capital reserve funds.
The agreement had been under negotiation since CEO Jean Paul Prates’s administration and is part of the so-called “large tax thesis transaction” being carried out by the Federal Revenue and PGFN, one of the Ministry of Finance’s main strategies to eliminate the primary deficit this year.
The agreed amount represents a 65% discount from Petrobras’s original liability of R$44.79 billion. Of this amount, R$6.65 billion will be paid with deposits in court already made in the cases, and R$1.29 billion will be transferred using tax loss credits from subsidiaries.
The remaining R$11.85 billion will be paid in installments, with R$3.57 billion due at the end of June and six monthly installments of approximately R$1.38 billion each, starting in July, adjusted by the Selic policy interest rate. “In the net profit for the second quarter of 2024, the after-tax effects will be approximately R$11.87 billion,” the state-run company said in a notice of material fact.
According to Petrobras, about 13% of the total is the responsibility of “various partners” in the exploration and production (E&P) consortia. Petrobras said that it is negotiating the terms for reimbursement of amounts related to such participation and that the agreement brings “economic benefits.”
“Maintaining judicial discussions would imply a financial effort to provide and maintain judicial guarantees, in addition to other costs and expenses,” Petrobras said.
Sources consulted by Valor believe that the approval of the agreement with CARF may indicate that the government will not wait until December to decide on distributing to shareholders the funds retained as capital reserve. In April, the company’s shareholders approved in an extraordinary general meeting (AGE) the payment of R$21.9 billion, corresponding to 50% of the extraordinary dividends from 2023, amounting to R$43.9 billion. Of the total, the government received about R$8.1 billion, with just over R$6.3 billion going to the National Treasury and around R$1.7 billion to the Brazilian Development Bank (BNDES).
The other half was retained as a capital reserve to be evaluated by the company by the end of the year, with the possibility of distribution as interim dividends. If Petrobras decides to distribute it, the government could receive an additional R$6.3 billion this year.
This way, the government could receive approximately R$32.6 billion in extra funds from Petrobras this year, including the agreement with CARF, the distribution of retained dividends, and the amount approved by the AGE, which is being paid. Shareholders received the first installment of the R$21.9 billion authorized in May, and the second installment is expected to be released in the coming days.
The government needed at least two votes in addition to the six it already held on the board, as the majority shareholder of the oil company. According to the board’s internal regulations, operations involving the government require approval by two-thirds of the directors. In case of a tie, the regulations say that the chairman would have the casting vote.
The agenda was approved in the meeting by a vote of 10 to 1. Since the government has six representatives on Petrobras’s board, which comprises 11 seats, the matter needed at least eight votes to be approved. The only dissenting vote came from the representative of minority shareholders, Marcelo Gasparino, according to a source.
CEO Magda Chambriard appointed Fernando Melgarejo, a director at Banco do Brasil’s pension fund, as the oil company’s chief financial and investor relations officer
06/17/2024
Fernando Melgarejo — Foto: Divulgação
Petrobras CEO Magda Chambriard announced her first changes to the company’s executive team on Friday (14), nominating three new executives. Analysts interviewed by Valor expressed immediate doubts about whether the nominees possess the ideal qualifications for their respective roles.
For the position of chief financial and investor relations officer, Ms. Chambriard nominated Fernando Melgarejo, the director of investments at Previ, the pension fund of Banco do Brasil. The interim CFO position had been held by Carlos Alberto Rechelo, executive finance manager, following the departure of the previous CFO Sergio Caetano Leite, who left the company along with former CEO Jean Paul Prates.
Experts consider Mr. Melgarejo’s nomination the most sensitive. Concerns arise because the CFO is the second most important position in the company hierarchy after the chief executive officer. Selecting Petrobras’s executive team is the CEO’s prerogative, though historically, the state-owned company has often been subject to political appointments by the government and parties. The Lula administration is no exception.
Following the announcement, there was a nearly immediate interpretation that Mr. Melgarejo’s selection was politically motivated, given the current Previ administration’s close ties to the presidential office. For instance, during the succession of Vale’s CEO earlier this year, Previ was rumored to have played a key role in an unsuccessful attempt to install former minister Guido Mantega as head of the mining company, a move pushed by President Lula that led to a depreciation in Vale’s stock.
Petrobras and Previ did not respond to requests for comments on the criticisms.
Ms. Chambriard also nominated Sylvia dos Anjos as chief exploration and production officer and Renata Baruzzi as chief engineering officer. These appointments require approval through the company’s governance procedures and subsequently by the board of directors. If approved, the new executive team would be half female, with Clarice Coppetti currently being the only woman on the team, overseeing corporate affairs.
Former heads of exploration and production, Joelson Mendes, and engineering, Carlos Travassos, may be reassigned within Petrobras if the new nominees assume their roles, as they are long-serving employees of the state-owned company.
Analysts from banks and consultancies are concerned that Ms. Anjos and Ms. Baruzzi might lack the necessary business acumen for Petrobras’s executive positions. Although both are technical experts and long-time employees of the company, something appreciated by the market, they might lack corporate leadership experience. One source suggested that Ms. Anjos and Ms. Baruzzi are out of touch with Petrobras’s future direction. “Magda [Chambriard] is looking backward rather than forward. She’s selecting people from her time at Petrobras, between 1980 and the early 2000s,” said the source.
Ilan Arbetman, an analyst at Ativa Investimentos, sees Mr. Melgarejo’s nomination as a signal that the government intends to manage Petrobras according to its interests. “The volatile reaction in the stock explains this. For such a critical role as the chief financial officer, the government directly chose someone from Previ to shape the oil company in its own way,” said Mr. Arbetman. He believes this indicates the company may become less responsive to market demands.
Mr. Arbetman added that the position Mr. Melgarejo was nominated for requires more interaction with the private sector than he had at Previ: “His learning curve may be longer.”
Scenario forces government to review revenue and spending, posing risk of shutdown
06/17/2024
Manoel Pires — Foto: Wenderson Araujo/Valor
The change in the federal government’s primary result target for 2025 slowed the fiscal adjustment process and compromised the debt trajectory. The increase in mandatory expenses and the decreasing room for discretionary expenses, which fell by 0.5 percentage points of GDP from 2011 to the 12 months up to April, have delivered a warning. The government must not only increase revenues to meet the target but also make the framework viable within spending and avoid the risk of a shutdown of the public sector in the coming years due to insufficient spending to sustain its operation. The scenario requires a change in the fiscal strategy, even though the government faces downturns with successive defeats in Congress, and it is hard to change expenses regarded as priorities for the Lula administration.
According to Manoel Pires, a researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV), one of the most delicate points of the debate is the increase in mandatory expenses in relation to total spending. That reduced the room for discretionary expenses. He says that in 2011 total spending was equivalent to 16.8% of GDP, while mandatory expenses were equivalent to 14.6% of GDP. The difference, of 2.2 percentage points, was related to discretionary expenses. Now the difference is 1.7 pp in the 12 months up to April. Total spending is 20.1% of GDP and mandatory expenses are 18.4%.
Based on data and analysis carried out by Mr. Pires, the topic is addressed by Ibre-FGV director Luiz Guilherme Schymura in the “Carta do Ibre” report released this month.
Mr. Pires points out that, as the federal government changed the 2025 primary result target, the improvement planned in the coming years became more gradual than initially expected, with an increase of 0.25 p.p. per year instead of 0.5 p.p. until 2027. The targets are now zero primary results in 2025 and a surplus of 0.25% of GDP in 2026, the last year of President Lula’s current office. The surplus of 1% of GDP would only be achieved in 2028 after a positive primary result of 0.5% of GDP in 2027. The flexibility range of 0.25 p.p. up or down has been maintained.
The change in the target, he says, was due to factors including the impact of municipal elections on the Parliament’s agenda in the second half of the year and the worsening in the government’s relationship with the Congress. Increased non-recurring revenue is expected to favor the fiscal result in 2024. The difference, plus the additional adjustment to the previous target, according to Mr. Pires, would require an effort involving over R$100 billion.
In this context, the government’s decision to change the fiscal target is natural, but there are impacts, the economist says. “The fiscal framework will pose a different challenge to the government, changing its deficit reduction strategy. The government will also have to discuss spending, which somehow is already happening.”
One of the negative impacts of changing the fiscal target is that the idea of an incremental improvement each year has been undermined, Mr. Pires points out. The zero target for 2025 remained the same as that for 2024. When the change was announced—before the Rio Grande do Sul disaster—it indicated that the primary result in 2025 could be worse than that of 2024. Excluding the effect of the floods, Mr. Pires estimates that the 2024 deficit could reach 0.57% of GDP (R$65.7 billion). For him, under the current conditions, it will be “very difficult” to achieve the target. Considering the flexibility range, the deficit in 2024 could reach 0.25% of GDP. He points out that by failing to meet the target in 2024 the government could create triggers for 2025, which could lead to freezing spending or reviewing the target for this year.
Mr. Pires points out that, under the 2025 Budgetary Guidelines Bill (PLDO), next year’s fiscal result could reach R$75 billion, including registered warrant payments (IOUs issued by the judiciary branch). The PLDO provides for a primary deficit of R$29.1 billion, plus IOUs amounting to R$39.9 billion. With recent news suggesting that IOUs may exceed expectations, the deficit could get close to R$75 billion in 2025, the economist explains.
Under the PLDO, primary spending in 2025 would total 18.96% of GDP, slightly above the 18.93% of GDP in 2024, in the reading carried out in the first two months. It gets worse, Mr. Pires notes. Mandatory expenses increase to 17.24% of GDP in 2025, from 16.87% this year. Discretionary expenses grow from 2.06% to 1.72% of GDP, of which 0.32 p.p. refers to mandatory amendments. “Actual discretionary expenses are equivalent to 1.4% of GDP. Then, a problem arises. In binary thinking, it is hard to tell what the minimum discretionary expenses would be to avoid a shutdown. Historically, the lowest level was 1.5% of GDP, during the pandemic, when many public agencies were closed due to the lockdowns, which resulted in lower discretionary expenses.”
The PLDO projection is not as accurate as that of the annual budget bill (PLOA), Mr. Pires says. “However, it delivers a warning about the framework’s ability to make the budget viable. Therefore, the government started addressing spending. Besides making the target viable by increasing revenue, it now has to create the conditions for the viability of the [fiscal] framework within the budget.”
Regardless of the level that would lead to a shutdown of the public sector, the economist says it is easy to see that the minimum spending possible in a Workers’ Party administration, with more public policies, is different from the Bolsonaro administration. He points out that the PLDO projection for 2026—when discretionary expenses, discounting mandatory amendments, should be at 1.27% of GDP—is very bad and unlikely to happen in an election year. “That brings the debate forward in an attempt to make the framework viable in 2025.”
The problem, according to him, is that the budget is becoming increasingly rigid. He says there was an increase in mandatory expenses with the permanent policy of increasing the minimum wage—with impacts on spending on Social Security, unemployment insurance, and salary allowance, among others—, an increase in the amount of social security benefits, expansion of the Bolsa Família cash-transfer and increased spending linked to revenue, such as congressional earmarks and constitutional minimum healthcare spending. Minimum spending on education was also reestablished, although it has no practical effect on increasing expenses. Furthermore, the new framework provides for an investment floor, the economist points out.
“There is individual merit in all items but the whole does not fit within a fiscal rule. Total spending is 20.1% of GDP, considering the 12 months up to April, including IOUs. When the framework was created, the government’s argument was to maintain spending levels considering 19% of GDP. The data is influenced by the temporary effect of early court-ordered payments. However, it seems politically difficult for the government to maintain spending at 19% of GDP. There is always a reason for early spending and bringing it a little above the framework,” Mr. Pires points out.
To analyze spending structurally, Mr. Pires compares spending in the first four months of 2024 with the same period of 2023, excluding IOUs, and with inflation-adjusted numbers. Total spending increased by 7.6%, equivalent to three times the spending growth rate allowed by the fiscal framework, of 2.5%, inflation-adjusted. Personnel expenses increased by 3.1%, social security expenses, by 7.9%, and discretionary expenses, by 21.2%. “The government has a huge spending pressure to manage.”
Mr. Pires draws attention to the 4.1% increase in the amount of social security and accident benefits issued in March compared to the same month in 2023. He points out that this trend has been in place since the middle of the second half of 2023.
According to the economist, the current situation shows that the fiscal structure requires slow adjustment in Brazil. “We have a high tax burden considering the country’s development level,” he said. The Organization for Economic Cooperation and Development’s average tax burden increased from 31.5%, in 2010, to 34% of GDP, in 2022, a 2.5 percentage points growth, Mr. Pires notes. “Many of the OECD countries, especially in Europe, made adjustments with increased tax burden in the 2010s.” In Brazil, he compares, tax burden increased from 32.2% to 33.1% in the same period, or 0.8 p.p. [Finance Minister Fernando] Haddad’s [defending] the adjustment by revenue makes sense. However, it’s not possible to focus it all on the revenue side.” On the other hand, he says, spending in Brazil is very rigid, as it involves many constitutional matters, making changes difficult. Also, there are acquired rights.
“The whole leads to ambiguity, which we are currently experiencing,” Mr. Pires says. In periods of low growth, even if the current situation is better than before the pandemic, the policy is confusing. There are signs to control debt, while there is excessive concern about the cyclical impact of such control, he explains. “It is necessary to improve fiscal results but also to increase public spending to stimulate the economy.” He points out that IOUs are becoming an instrument of countercyclical fiscal policy.
“That is very weird. It is where the government found a relief valve to create a narrative to increase spending to stimulate the economy.” Traditionally, he says, this is done via investment or with tax relief for low-income households. Struggling to adjust revenue and expenses leads to a gradual fiscal improvement that is subject to reverse. Whenever the timing is too long, the adjustment is subject to shocks, as happened in the pandemic and now with the disaster in Rio Grande do Sul.
“The adjustment can’t be too fast that it is impossible nor too slow that no one believes it,” Mr. Pires claims. While it requires credibility, the adjustment program needs to have a balance of revenues and expenses, to preserve public investments, the economist points out. Furthermore, it is necessary to “sell the future with an agenda of structuring reforms,” in which economic growth expectations could alleviate the burden on public accounts, as happened in the past with the pension reform and is being aimed with tax reform, in the long-term.
Mr. Schymura, from Ibre/FGV, points out that the current political moment is an additional challenge, as the government is experiencing many defeats in Congress. He points out that the Lula administration was already the target of criticism for only reestablishing old programs and now news says it needs to make adjustments on the spending side. “What could be offered in exchange for decoupling the minimum wage from Social Security? It requires positive, unexpected news. I see a difficulty in putting together a narrative to package such a fiscal adjustment.”
Mr. Pires says the idea that nothing seems possible to be discussed in terms of reducing spending is worrying. For him, although the spending review plan is important, betting on it as a sufficient solution for the fiscal framework was a “strategic mistake.”
In the short term, according to Mr. Pires, administrative measures need to be taken and spending can be contained again. “The minimum wage brings a lot of pressure but it is difficult to reverse. From a strategic point of view, the government could choose an item to seek victory on the spending side.” The minimum healthcare spending, if there is room for that, could be an example. “If they manage to do that, the scenario for 2025 could improve and it would be possible to make 2026 viable.”
Healthcare spending, according to Mr. Pires, could be aligned with the framework’s spending rule. “Another interesting discussion is changing the concept of net current revenue to which healthcare spending is linked.” This revenue is currently subject to many variations, such as the recent commodity shock.
Among possible short-term measures, Bráulio Borges, consultant at LCA Consultores and researcher at Ibre, cites the mechanism known as DRU, which allows flexible use of part of revenues by the federal government, that was extended until the end of 2024. “There is an opportunity to approve a new proposal to amend the Constitution later this year, possibly expanding its scope and increasing its percentage. An extended and boosted DRU could create flexibility in the short term, to mitigate the problem of these ties, such as healthcare, and improve budgetary rigidity.” He also mentions the salary allowance, which represents 0.2% of GDP per year, a program that could be improved by adjusting its focus, with no need to be eliminated, he argues.
Only 9 of the 132 analysts surveyed by Valor anticipate a rate decrease in upcoming Central Bank decision
06/17/2024
Laiz Carvalho — Foto: Nilani Goettems/Valor
The outlook for Brazil’s monetary policy indicates that the period of monetary easing may have concluded. The recent depreciation of the real and the uptick in inflation expectations, pushing the exchange rate to around R$5.4 per dollar, have solidified this perspective among financial market analysts. In the upcoming Central Bank’s Monetary Policy Committee (COPOM) meeting, scheduled for this Wednesday, the Selic rate (Brazil’s benchmark interest rate) is expected to remain at 10.5% per year, as anticipated by the vast majority of market participants surveyed.
Out of 132 institutions polled, only nine predict a 25-basis-point reduction in the policy interest rate this week. Furthermore, expectations for the end-of-year Selic rate do not foresee any cuts, with only 33 out of the surveyed institutions—about a quarter—anticipating a potential easing of rates in 2024.
Recent concerns over economic policy have significantly impacted Brazilian asset prices, with the exchange rate climbing from R$5.15 to nearly R$5.40 since the last COPOM meeting in May, and future interest rates have surged, occasionally crossing the 12% threshold.
Amid concerns about inflation’s trajectory, following the Central Bank’s split decision in its last meeting, medium-term inflation expectations appear to have become untethered. Inflation projections for the Consumer Price Index (IPCA) in 2025 in the Focus Bulletin have escalated from 3.64% to 3.78%, moving further from the target set by the Central Bank. Similarly, forecasts for 2026 have also increased from 3.50% to 3.60%.
This trend was confirmed by a Valor survey, which highlighted a rise in the median inflation estimate for 2025 from 3.62% to 3.80% in its May edition.
In light of these developments, market participants increasingly believe that the Central Bank may have no choice but to conclude its monetary easing cycle for the foreseeable future. Despite these challenges, there remains a consensus among surveyed experts for a unanimous decision within the Central Bank’s policy-making body in their baseline scenarios.
“We ended up moving towards the view that, in order to control the worsening of inflation expectations, the COPOM will have to pause [the cycle] and seek unanimity. The exchange rate has risen, inflation has shown some slightly more annoying signs, and activity remains strong,” said Anna Reis, chief economist at Gap Asset.
She anticipates that the COPOM’s inflation projection for 2025 will drift further from its target due to deteriorating exchange rates and Focus survey expectations. “We think it should go from 3.3% to 3.4% or 3.5%. And the Central Bank should also revise its neutral interest rate projection to 5% in real terms in the Inflation Report, which would be another reason for this projection to approach 3.5%,” she notes.
Ms. Reis also highlights the uncertainty around how the collegiate body will communicate this policy shift. “Given that it’s going to pause, it’s expected that the statement will be hawkish. It will probably weigh heavy on expectations. What I will monitor is whether it will signal a pause in the cycle of cuts or treat it more as an interruption,” she adds.
In BNP Paribas’ view, the COPOM is unlikely to completely dismiss the possibility of rate cuts in 2024, positioning itself in a “data-dependent” stance while aiming for convergence in expectations. They forecast the basic interest rate will remain at 10.5% by the year’s end.
“I believe that the COPOM members’ discourse will be more unified this time. The split decision brought a lot of volatility to the market, and from recent communications, we have seen the members trying to bring a more unified discourse,” said Laiz Carvalho, BNP Paribas’ economist for Brazil. She outlines two potential outcomes: a unanimous decision to hold the interest rate at 10.5% per year or a majority decision with 7 votes for a pause and 2 against.
Despite these efforts, Ms. Carvalho doesn’t foresee an immediate effect on re-anchoring inflation expectations. She identifies three main drivers behind the rising projections for IPCA in 2025 and 2026. “The first involves increased inflationary pressures in 2024, potentially triggered by the tragic events in Rio Grande do Sul, global geopolitical tensions, or rising inflation abroad. The second factor is ongoing fiscal uncertainties. As I project a deficit of 0.7% in 2024 and 1% in 2025, contrasting a government projection of 0%, the fiscal risk is included in the inflation projections. This will only become clearer around August, with discussions for the 2025 Budget. The third factor, though not influential in my projections, is market concerns about a potentially more lenient stance from the Central Bank starting next year,” said the BNP Paribas economist.
Likewise, Claudio Ferraz, chief economist at BTG Pactual, also weighs in, warning that any dissent could severely destabilize inflation expectations.
“A possible lack of unanimity in the decision, even if it’s not as extensive as the split we saw at the May meeting, would still significantly impact expectations negatively. In addition, doubts persist about the Central Bank’s communications strategy. There’s uncertainty about whether this meeting will end without clear future guidance or if it’ll signal a pause in rate adjustments or something similar. I believe mentioning a pause now could exacerbate concerns, worsening expectations, even if the decision to pause is unanimous,” he added.
The chief economist of XP Asset, Fernando Genta, also expects a score of 9 to 0 for the maintenance of the Selic but ponders that the race for the presidency of the monetary authority can be a risk. “The prospect of maintaining the Selic rate is quite strong, with a 9 to 0 vote expected, but there’s an additional variable in play—the race for the Central Bank presidency. Even though each director is independent, their aspirations might influence their votes. This doesn’t imply that any director is indifferent to inflation concerns, but it does introduce some uncertainty into the voting dynamics.”
Other experts also noted the importance of watching how political reactions unfold post-decision, especially regarding criticism aimed at government-appointed members who might vote to pause the rate cuts.
Despite some optimism among traders, the current economic climate poses challenges for lowering interest rates. Anna Reis of Gap Asset, however, sees potential for rate cuts later this year. She predicts, “Given our inflation projection of 3.7% for 2025 and a current Selic rate of 10.5%, we’re looking at nearly 7% real interest. As the monetary policy horizon shifts towards 2026 in the latter half of the year, if the COPOM’s inflation forecast begins to dip below 3%, we might see rate reductions resuming.”
She anticipates two quarter-point cuts in the final COPOM meetings of the year, supported by expected monetary easing in the United States that could strengthen emerging market currencies. “The U.S. Federal Reserve is expected to start reducing interest rates in September. Even if this shift is delayed to November, the U.S. would be on the brink of making those cuts. This adjustment could enhance the second half of the year, potentially strengthening emerging market currencies,” she notes.
BNP Paribas, on the other hand, expects rate cuts to be delayed until 2025, aligning with the global trend of easing monetary policies. The French bank predicts a total reduction of 100 basis points in the Selic rate next year, aiming for a target rate of 9.5% per year.
Statement comes amid growing pressure for spending-cut measures
14/06//2024
Fernando Haddad and Simone Tebet — Foto: Diogo Zacarias/MF
Finance Minister Fernando Haddad said on Thursday that it is essential to intensify studies on the review of public spending. According to Mr. Haddad, “primary spending needs to be reviewed, tax spending needs to be reviewed, and the Central Bank’s financial spending as well.” He also mentioned that the economic team set in motion a “comprehensive, general, and unrestricted” review of expenses.
Mr. Haddad unexpectedly commented on the matter alongside Planning Minister Simone Tebet after a last-minute meeting at the Ministry of Finance amidst financial market tensions due to concerns that he could be losing ground within the Lula administration and uncertainty about the progress of the government’s economic agenda following the Senate’s rejection of a provisional presidential decree on social taxes PIS/Cofins this week.
The statement was in response to demands for spending-cut measures, as there is a perception among market agents and experts that the fiscal agenda on the revenue side is exhausted.
Shortly after the meeting, in the early afternoon, the finance minister said that he had started discussions with Ms. Tebet on the 2025 Budget and that the public spending review agenda “is gaining more traction over time.” “Simone [Tebet] and I are talking more and more about this,” he said.
The minister’s statement to the press caused the foreign exchange and interest rates to fall and the Ibovespa, Brazil’s benchmark stock index, to recover losses partly. Despite the statements, economists remain skeptical about the possibilities of concrete progress on these proposals.
“We asked for an intensification of efforts so that by the end of June we can have clarity on the 2025 Budget, structurally well-constructed to provide reassurance on addressing the country’s fiscal issues,” Mr. Haddad said.
According to the minister, there will be a “more intense pace” of work this month, as the budget proposal needs to be sent to Congress by August 31. Although he did not specify which types of spending are being structurally analyzed by the economic team, he mentioned that the review aims to accommodate the “legitimate aspirations” of Congress and the Executive branch, “especially so that we can have peace of mind next year.”
The minister noted that any proposals for public spending review that require legislation need to be approved this year to impact 2025.
“Congress is willing to move forward, willing to review primary spending and cut privileges. Topics discussed like super salaries, correction of benefits practiced against the law, and improvement of records are back on the table. We think this is great; it facilitates the work of balancing the accounts.”
On Wednesday, domestic assets were hit by another round of deterioration after President Lula cited increased revenue and lower interest rates as a recipe for fiscal balance—without mentioning spending cuts or the rejection of the provisional presidential decree.
When asked about Ms. Tebet’s remarks on detaching the minimum wage from benefits such as unemployment insurance and the Continuous Cash Benefit (BPC, for very poor elders and disabled people), Mr. Haddad said that the position is the “economic team’s,” claiming that they are “in sync.”
“Although the Ministry of Finance deals more with revenue and the Ministry of Planning with spending, we are not exchanging views on the feasibility of the proposals all the time. Everything that can be done on both sides helps.”
The population, the minister said, needs to continue to have their fundamental rights met, as well as investment happening “to improve the productivity of the Brazilian economy.”
Following this, Ms. Tebet reiterated that the economic team has “plans A, B, C, D, E” for the spending review but noted that the review of constitutional floors for education and health are “towards the end of the alphabet in the menu.” This “menu,” she said, has not yet been presented to President Lula.
Ms. Tebet also said it is necessary to forget the word “pension” in discussions about detaching the minimum wage, referring to retirement. “Even I don’t agree with that,” she responded when questioned.
The minister has opposed detaching pensions from the minimum wage but supports studying the delinking of other benefits. According to her, this is an agenda that is “mid-alphabet,” referring to the plans and possibilities studied by the economic team.
According to Ms. Tebet, social security spending is increasing sharply, but the solution is not a new pension reform. “The problem lies in social security exemptions that affect tax spending. Solving tax spending problems means not creating new tax exemptions in the country, as pointed out by the public spending watchdog in the government’s 2023 accounts report, approved on Wednesday,” she said.
The planning minister also noted that there are several filters before a proposal can prosper. “Haddad has to agree with the Ministry of Planning’s proposals, and vice versa, otherwise we won’t move forward.”
Financially viable solutions, investments in biorefineries, and large-scale renewable energy production are all viable for addressing climate change and goals
06/13/2024
Mubadala’s Yamamoto stressed the need for large-scale initiatives to counteract climatechange effects — Foto: Christopher Pike/Bloomberg
Leonardo Yamamoto, executive director of Mubadala Capital, emphasized that the private sector plays a crucial role in achieving global “net zero” carbon emissions. Speaking at the FII Priority Summit in Rio, a gathering of international leaders and executives, the director of the UAE fund stressed the need for large-scale initiatives to counteract climate change effects.
“The only viable strategy to combat climate change involves financially sustainable solutions,” he explained, adding, “In Brazil, Mubadala is investing in a biorefinery in the Northeast. We believe this facility will not only produce renewable fuels but also a molecule that captures carbon.”
Mr. Yamamoto further pointed out the necessity of producing renewable energy on a large scale to facilitate the energy transition, stating, “We must challenge the existing polluting industries.”
Marcos Bulgheroni, president of the Pan American Energy Group, speaking alongside Mr. Yamamoto, noted that the world will need to utilize a variety of energy sources before achieving “net zero.” He stated, “We need to determine the mix of energy sources that will help us lower the overall emissions of our energy matrix. These varied sources will coexist and compete for many years to come.”
Mr. Bulgheroni, leading the Argentine-based group, emphasized the importance of a regional approach to fostering energy transitions: “The Vaca Muerta gas pipeline, for instance, will be crucial for the Southern Hemisphere. A regional vision is essential for identifying optimal solutions.”
Adding to the discussion, Musaab M. Almulla, vice president of energy and economic insights at Saudi Aramco, reiterated that scaling and implementing finance for the energy transition poses a significant challenge. He highlighted Aramco’s commitment to investing not just in green hydrogen but in all technologies aimed at reducing emissions and introducing innovative solutions.
Mr. Almulla also outlined the company’s strategies for decarbonization, which include enhancing energy efficiency, expanding the use of renewables, and minimizing flaring. Flaring, he explained, is the process where natural gas released during oil extraction is burned off, emitting carbon dioxide into the atmosphere.
Exchange rate hits R$5.4 per dollar, long-term interest rates exceed 12%, and Ibovespa reaches yearly low amid growing investor pessimism
06/13/2024
Eduardo Cotrim — Foto: Luciana Whitaker/Valor
Domestic assets in Brazil suffered from a fresh wave of risk aversion, reaching their lowest levels of the year. Comments from President Lula, who suggested that increased tax collection and lower interest rates could narrow the primary deficit, failed to reassure market participants. Additionally, the reinstatement of a Provisional Presidential Decree that restricts PIS and Cofins (social taxes) credits fueled concerns that Finance Minister Fernando Haddad is losing influence within the government, contributing to a broadly pessimistic sentiment across financial markets.
The foreign exchange rate ended the day up 0.86% at R$5.4066—its highest since January 4, 2023—peaking at R$5.42. Future interest rates jumped, with the market now anticipating a sharp increase in the Selic policy interest rate by year-end. Meanwhile, Brazil’s benchmark stock index Ibovespa fell below 120,000 points, dropping 1.4% to close at 119,936 points.
This heightened domestic anxiety contrasts starkly with the positive trends in global markets. In the U.S., lower-than-expected inflation data shifted focus away from immediate Federal Reserve actions, leading to a significant rally in U.S. stocks and a decline in both the dollar and Treasury yields.
“Before, we could even talk about U.S. interest rates, but now we have other reasons for our underperformance. What is at the heart of this is our fiscal issue,” said Luis Garcia, CIO of SulAmérica Investimentos, highlighting the need to confront domestic problems directly. “It’s effortless to find out where the problem lies.”
In Mr. Garcia’s view, following market tensions that escalated since Friday, there was an expectation for President Lula to publicly support Minister Haddad by acknowledging the fiscal challenges yet reiterating a commitment to fiscal targets. “What we saw today [Wednesday] was exactly the opposite. We saw the president saying that the country is going to grow and that, as a result, there will be more revenue and, therefore, no need to cut spending. It’s the opposite of what was expected,” he noted.
President Lula, speaking at the FII Priority Summit, an international gathering of leaders and executives to discuss investment opportunities capable of providing sustainable growth to countries, said his administration is “putting its house in order,” including government accounts. “Through increased revenue and reduced interest rates, we can decrease the deficit without hindering public investment capabilities,” the president stated.
“Things are still hideous in the local market, and we’re in a crisis. Several articles throughout the day said that Haddad was weakened, with friendly fire from within his own party trying to undermine him. Lula had the opportunity to defend the minister and his role in controlling public spending, but he didn’t do it,” said Luiz Eduardo Portella, partner and manager at Novus Capital. “We need Lula to come to Haddad’s defense and prime his intention to control spending. Otherwise, we won’t get out of this downward spiral,” he added.
Mr. Portella also commented on the broader international context affecting Brazil’s market positioning; a few months ago, Brazil was in an environment where it was enough “just not to do anything stupid” to be dragged along by a global improvement. “We seem to have hit a wall now. We need to do some homework and row in the right direction to get back in line with global markets,” he said.
This issue is compounded as global investors grow wary of emerging markets due to political changes in countries like Mexico, India, and South Africa. “Global investors look at these countries and simply choose to reduce their exposure to emerging markets. Why would they look at emerging markets if the American market is still at all-time highs?” Mr. Portella questioned.
A similar stance is upheld by Eduardo Cotrim, partner and manager at JGP, who shares insights into how his company successfully navigated recent market turbulence. He reveals their strategic positions, which included long bets on the dollar against the real and on rising long-term interest rates.
On Wednesday, the Interbank Deposit (DI) rate for January 2029 closed the session at 12.155%, marking the first time this year it crossed the 12% threshold.
“The emerging darlings were Mexico and India, where the elections disappointed. With the emerging class full of problems and doubts and the return on American fixed income at an all-time high, the notion that money could flow into Brazil is diminishing, particularly as there are significant concerns here regarding fiscal policy and uncertainties about the continuation of the fiscal framework,” points out Mr. Cotrim. He sees the return of the PIS/Cofins Provisional Presidential Decree as “emblematic.”
“Haddad’s agenda proposes no spending cuts and leaves the entire bill to the private sector. Eventually, the business community feels the strain, and that time has come. The costs are simply too high,” he explains, indicating general exhaustion with the government’s approach to maintaining public expenditure without cutbacks. “This dissatisfaction stems from the excessive spending. The expenses are substantially high, and as budget discussions approach, we’re yet to see a clear plan on fiscal management,” he adds.
Mr. Cotrim reveals strategic shifts in his own investment approach, saying he has zeroed out positions in Brazilian assets and currently sees no appeal in the real or domestic interest rates. “I have no appetite for it. We believe it’s still too premature to place favorable bets. Numerous uncertainties are lingering, and these issues aren’t unique to Brazil,” emphasizes the JGP manager.
He also points to necessary changes in the global financial sentiment that could potentially improve the local economic outlook. “The high interest rates in the U.S. have set a high benchmark for foreign investors to allocate risk in emerging markets, diminishing the appeal of riskier emerging markets investments. This reluctance is evident in the bond auctions and other investment activities. Moreover, the rising skepticism in the market due to Lula’s waning popularity and other local issues like the continuous disputes within COPOM and changes in Petrobras’s leadership add to the prevailing uncertainty,” states Mr. Cotrim.
It’s important to note that in Wednesday’s session, Petrobras’s common shares fell by 2.1%, and preferred shares were down by 2.41%, following comments by the company’s CEO, Magda Chambriard, indicating that the company will use “all resources to invest in Brazil.”
“Since the Bolsonaro administration, we’ve seen numerous changes in the presidency of the company but minimal actual change within the company itself. We’re observing these shifts in discourse cautiously, as this isn’t the first time we’ve encountered this scenario, yet we still believe it’s mostly noise,” stated Fernando Siqueira, head of research at Guide Investimentos.
Assessing the overall situation, he suggests adopting a more defensive stance until there’s clearer visibility, particularly considering the perceived weakening of Minister Haddad. “His potential exit might create room for increased government spending,” Mr. Siqueira commented. “Moreover, President Lula’s recent statements were poorly received as they suggest a continued misdiagnosis of the fiscal situation.”
Leonardo Monoli, managing director of Azimut Brasil Wealth Management, also highlighted concerns in the financial landscape. He criticized President Lula’s recent remarks for not addressing necessary spending cuts, which he believes significantly impacts market sentiment. “There is never any discussion on the spending side, but only on the side of increasing revenue,” Mr. Monoli noted.
“We’re going to have a complicated second half of the year, and my concern now is that we’re going into this second part of the year very badly positioned,” he remarked, referencing the Federal Reserve’s indications of only one interest rate cut this year. “We’ve wasted a first half of the year that is seasonally favorable for flows. The government has to act, or we could have a problem. We’re heading for it.”
*Por Victor Rezende, Matheus Prado, Gabriel Roca, Arthur Cagliari, Augusto Decker — São Paulo
Strategic expansion focuses on key sectors, highlighting Brazil’s role in renewable energy and AI’s growing energy demands
12/06/2024
The Governor of Saudi Arabia’s Public Investment Fund (PIF), Yasir Al-Rumayyan, expressed keen interest in broadening Saudi investments in Brazil. “We started investing in 2016 through one of our subsidiaries. Now we are focusing on technology, renewable energies, if all goes well, football,” he said at the FII Priority Summit in Rio, an international meeting of leaders and executives that takes place on Wednesday (12) in Rio.
Mr. Al-Rumayyan, who also serves as chairman of the board of the state oil company Aramco and president of the FII Institute, shared that about 80% of PIF’s investments are domestic, primarily in greenfield projects aimed at job creation. “Our remaining 20%, amounting to around $200 billion, is targeted internationally,” he said.
The executive emphasized Saudi Arabia’s commitment to sustainability, stating that the nation is a leader in renewable energy. He noted that fossil fuels can no longer be the basis of business, explaining Aramco’s strategy to decrease oil production and ramp up investment in renewable energy sources.
Mr. Al-Rumayyan raised a crucial issue that often goes unaddressed—the significant increase in energy consumption driven by advances in artificial intelligence.
“Energy consumption is going to rise substantially with artificial intelligence. The energy needed for one day of ChatGPT is equivalent to the annual consumption of 273,000 homes in California. This presents a major challenge globally, and we must seek renewable energy solutions to power such technologies,” he explained.
He further underscored Brazil’s potential as a “key player” in the renewable energy sector. “Brazil is very well positioned to be one of the key players [in renewable energy]. What it needs is good regulation and the right people, like those who are here,” he noted.
*Por Victoria Netto, Lucianne Carneiro — Rio de Janeiro
Business sectors praise decision to reject controversial measure
12/06/2024
Rodrigo Pacheco — Foto: Brenno Carvalho/Agência O Globo
After significant pressure from industry and agribusiness leaders, Senate President Rodrigo Pacheco returned on Tuesday part of the provisional presidential decree (MP) that limited social taxes PIS and Cofins credits. Mr. Pacheco said that it was a “constitutional decision, affirming the Legislative and reassuring the affected sectors.”
Mr. Pacheco’s decision was seen as an embarrassment for the government, especially the economic team. The last time such a return occurred was in 2021, during the Bolsonaro administration, involving a measure that hindered the removal of false internet content.
Following the announcement, Finance Minister Fernando Haddad said that the Parliament’s reaction “is part of democracy” and added that he did not find the criticism from the productive sector “undue.”
He further mentioned that the Federal Revenue Service team would work with Congress to find a solution to compensate for the tax revenue loss from the payroll tax relief for 17 labor-intensive sectors and municipalities—the goal of the returned decree. When asked if the government had a plan B, Mr. Haddad denied it but said, “There’s always a way to find a solution.”
“The Senate has taken part of the responsibility to try and build a solution, from what I understood from President Rodrigo Pacheco’s speech,” the minister said as he left the Finance Ministry headquarters.
The day before, the Senate President had a meeting with President Lula and agreed on a 24-hour deadline for the government to propose an alternative to the MP, which did not happen. One possibility was for the government to withdraw the provisional measure itself to minimize the perception of a failure in coordination.
“There is a substantial innovation in the MP with changes to tax rules that significantly impact the national productive sector, without observing the constitutional ninety-day rule, especially for PIS and Cofins compensations,” said Mr. Pacheco in the plenary when announcing his decision.
“Therefore, based on this very basic and obvious observance, and with absolute respect for the Executive branch’s prerogative, the President of the Republic in issuing provisional executive orders, what we see is a violation of the Constitution, which requires the impugnation of this matter with the return of these provisions to the Presidency,” he added.
After the announcement, Mr. Pacheco was applauded by opposition members. The leader of the Parliamentary Agricultural Front (FPA), Congressman Pedro Lupion, was also present.
Despite the discomfort, the government’s leader in the Senate, Jaques Wagner, not only praised but also thanked Mr. Pacheco’s decision. “The Honorable Mr. Pacheco, with your calmness and negotiating manner, instead of showing any outburst, ended up finding a solution that I can assure you: it has the applause of the President of the Republic, it has my applause,” said Mr. Wagner to Mr. Pacheco in the plenary.
In the same speech, Mr. Wagner said that Mr. Lula was uncomfortable with the decree and that maintaining the text would result in an “endless tragedy.”
“I want to say for the record here the role of the President of the Republic, who called you for a dialogue, along with the Finance minister, and expressed that he was clearly not comfortable, and you could find a legal and constitutional way to stop what would be an endless tragedy,” he said.
It was not only Mr. Lula who was uncomfortable. Members of the ministries of Agriculture (Mapa) and Development, Industry, Trade, and Services (MDIC) told Valor that they were unaware of the measure’s content until it was made public on Tuesday. These two ministries include the sectors that would be most affected by the restrictions.
Vice President Geraldo Alckmin was leading an official government delegation on a business trip to China and Saudi Arabia when he learned of the decree’s content through businesspersons accompanying the trip.
One source close to him said that Mr. Alckmin was “caught off guard,” as he did not have studies and data to counter the industrialists’ criticisms. The president of the National Confederation of Industry (CNI), Ricardo Alban, interrupted his participation in the official delegation and returned to Brazil early to act against the decree, holding meetings with the country’s main authorities, including President Lula.
After meeting with Mr. Lula, Mr. Alban told members of the ruralist caucus that the decree was “dead” and that he heard from the president himself that the matter would be withdrawn by the government or returned by Congress. Mr. Alban’s report of a private conversation with Mr. Lula caused even more discomfort in the government.
The decree’s return also created uncertainty about the legal effects of Mr. Pacheco’s decision. Senator Tereza Cristina questioned the Senate President about this during the session, amid doubts among business leaders on this point.
“All effects cease since the decree’s issuance, in the part impugned, which is the main part of the articles already referred to,” said Mr. Pacheco.
Historically, returning a provisional executive order, although possible, is not usual and has ramifications that vary from case to case, according to a note from the law firm Cascione Advogados sent to clients when the rejection was still a possible scenario. The text recalls MP 1068, issued during the Bolsonaro administration, which was returned by Congress through a summary rejection of the norm—in that case, the text was rejected and immediately revoked. In the case of MP 33, Congress also returned the text, but the norm remained in effect until it lapsed.
Lawyer Gabriel Baccarrini, from Cascione, said that the text returning the decree expressly states that the items would be “considered unwritten,” with the decree’s expiration. Therefore, it should not have effects. However, Mr. Baccarini added that the Senate’s own Rules of Procedure provide for the possibility of an appeal to the Constitution and Justice Committee.
Lawyer Fernanda Secco, a partner in the tax area of Velloza Advogados law firm, also highlighted the section of the act that states that the provisions limiting compensations were summarily rejected and considered unwritten, with the declaration of the end of the MP’s validity and efficacy, since its issuance.
*Por Julia Lindner, Caetano Tonet, Jéssica Sant’Ana, Rafael Walendorff, Beatriz Olivon — Brasília
With greater pressure from food in the South, benchmark index rises 0.46% in comparison to April
12/06/2024
Marcela Rocha — Foto: Ana Paula Paiva/Valor
The Extended Consumer Price Index (IPCA), Brazil’s official inflation index, interrupted a sequence of more favorable readings and rose again above expectations in May. The indicator brings the first impacts of the floods in Rio Grande do Sul on prices, as well as reinforcing economists’ discomfort with metrics linked to the heated economy.
The IPCA rose from 0.38% in April to 0.46% in May, statistics agency IBGE reported on Tuesday. The result was above the median of 0.41% collected by Valor Data and at the ceiling of forecasts.
In 12 months, the IPCA gained momentum again, from 3.69% to 3.93%, after seven decelerating readings. The rise was already expected, but it was also stronger than the median forecast of 3.87%.
“I didn’t like what I saw and ended up changing the [IPCA] figure for the year,” said Fábio Romão, an economist at LCA Consultores, who adjusted his projection to 3.9% from 3.7% in 2024.
J.P. Morgan also revised its IPCA projections after the last reading, to 4% from 3.7% this year and to 3.7% from 3.5% in 2025. The new figures seem more consistent with “the combination of a tight labor market, rising inflation expectations, a more depreciated exchange rate, and higher food prices,” wrote economist Vinicius Moreira and the bank’s chief economist for Brazil, Cassiana Fernandez, in a report.
Five of the nine classes of expenditure registered a slowdown in inflation between April and May: food and beverages (to 0.62% from 0.70%); household goods (to -0.53% from -0.26%); clothing (to 0.50% from 0.55%); health and personal care (to 0.69% from 1.16%); and communication (to 0.14% from 0.48%). On the other hand, there was an acceleration in housing (to 0.67% from -0.01%); transportation (to 0.44% from 0.14%); personal expenses (to 0.22% from 0.10%); and education (to 0.09% from 0.05%).
With the floods in Rio Grande do Sul, inflation in the Porto Alegre metropolitan region rose to 0.87% in May from 0.64% in April. This was the highest rate among the 10 metropolitan regions and six cities monitored by the IBGE. Remote price collection (by telephone or internet) in the region rose to around 65% from the historical standard of 20% in May, according to André Almeida, the IBGE manager responsible for the IPCA.
The IPCA would have risen less, by 0.42%, if the index had been reweighted without taking the state into account, said XP economist Alexandre Maluf. Mr. Almeida explains that the institute does not estimate the IPCA without the influence of one region or another, unlike the sub-items, for which it calculates the individual influence.
The main contribution (0.57 percentage point) to inflation in Rio Grande do Sul came from food prices at home, especially fresh food, dairy products, poultry, and wheat-related products, according to Mr. Maluf. In the general IPCA, rice rose 1.47% in May, “even faster than indicated by the collections,” said Terra Investimentos in a report. In April, there was a deflation of 1.93%.
The effect of the floods in Rio Grande do Sul has started to show up in inflation measured by the IPCA, especially in foodstuffs, but as the heavy rains affected production chains in general, consequences for industrial goods or services could still arise, said Mr. Almeida.
Although it slowed down compared to April, the food and beverages group exerted the greatest upward influence on the IPCA in May, by 0.13 percentage point, or 28.2% of the increase in the index. “Despite the slowdown, the rate recorded is seasonally high,” said Mr. Romão.
XP’s Mr. Maluf says that, in general terms, the acceleration of the IPCA in May, compared to April, was due to more volatile items, such as airfare (5.91% from -12.09%), some industrial goods (0.29% from 0.21%) and monitored items (defined by contract or public agency), such as energy (0.94% from -0.46%). Also contributing were some services linked to the economic cycle, such as personal services (0.31% from 0.19%) and food away from home (0.50% from 0.39%).
On the other hand, the 0.45% rise in gasoline was lower than expected by economists. Fuels (0.45% from 1.74%) and food at home (0.66% from 0.81%), especially fresh foods (0.99% from 3.66%), moderated the rise in May, compared to April. The problem is that economists were expecting a much smaller increase for food at home—0.37% for Terra and 0.44% for XP, for example. The result was “much higher” and “with generalized upward surprises,” said Mr. Maluf.
Marcela Rocha, chief economist at Principal Claritas, highlights the 0.29% rise in industrial goods, above her expectation of 0.27%. “It’s not such a significant surprise, but in the annualized and seasonally adjusted quarterly moving average, it went from a fall of 0.1% to a rise of 0.4%, which is still super low, but it’s another indicator that the process is no longer so much about favorable news,” she said. The seasonally adjusted annualized three-month moving average is a way of smoothing out monthly movements, but still capturing the trend “at the end.” “Unlike the last two months, these underlying measures performed worse,” said Ms. Rocha.
The greater-than-expected advance in industrial goods, driven by personal hygiene products and new cars, according to Mr. Maluf, contributed to the average of the cores (measures to smooth out volatile items) monitored by the Central Bank rising 0.39% in May, from 0.26% in April, matching MCM Consultores’s expectation and above XP’s forecast (0.34%), for example. All five core inflation rates accelerated compared to April, say Victor Beyruti and Yuri Alves, economists with Guide.
Over 12 months, the average core inflation rate accelerated to 3.55% from 3.53%, according to MCM. “It showed higher inflation again for the first time since June 2022,” Mr. Beyruti and Mr. Alves wrote.
In the three-month moving average, the cores went to 3.2% in May from 3.1% in April, “deviating from the downward trend seen in previous months,” said Mr. Maluf.
Services inflation accelerated to 0.40% in May from 0.05% in April, largely due to the rise in airfares, the first in the year. More relevant to economic analysis, underlying services rose from 0.33% in April to 0.41% in May, matching MCM’s forecast and above the expectations of Principal Claritas (0.32%) and XP (0.36%). The quarterly moving average rose to 5.1% from 4.9%.
“It’s still a level below that of the beginning of the year, when the services figures came in well above expectations and reached 5.6% in March, by this metric. But it shows a qualitative part of inflation that is not as favorable as had been observed and reinforces the Central Bank’s scenario of caution and concern,” said Ms. Rocha.
Labor-intensive services, another measure closely monitored by the Central Bank, slowed to 0.38% in May from 0.53% in April, “undoubtedly the only (albeit important) relief in the opening,” said the Terra team. The news, they say, would be more impressive if it happened in a context of a slowdown in the job market, which is not the case.
“In the midst of a below-equilibrium unemployment rate, accelerating wages, and a stagnating participation rate, we will need more to convince us that there is a new trend underway,” write João Maurício Rosal, Terra’s chief economist, and economists Homero Guizzo and Luís Gustavo Bettoni. On the quarterly moving average, labor-intensive services are at 6%.
The diffusion index, which measures the proportion of items rising in the basket, rose from 57% in April, to 57.3% in May, according to Valor Data. The dispersion “came in flat,” says Mr. Romão of LCA, noting that it not only exceeded that of April but was also higher than that of May last year. The same goes for underlying services. “It’s a nuisance, a red flag,” he said.
For June, inflation forecasts are around 0.3%. But economists expect food prices to rise even more, mainly because of the floods in the South region.
*Por Anaïs Fernandes, Lucianne Carneiro — São Paulo, Rio de Janeiro
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