Economist at Fundação Getulio Vargas estimates that cheaper fuel will reduce pump prices by 1.5%
06/16/2023
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André Braz — Foto: Leo Pinheiro/Valor
The 4.6% reduction in gasoline prices sold by refineries, unveiled Thursday by Petrobras, is expected to help reduce inflation in June and July, but will have little or no impact on the annual inflation result, said André Braz, an economist at Fundação Getulio Vargas (FGV)
Mr. Braz, who is in charge of the think tank’s Consumer Price Index (IPC), explained that the reduction in gasoline prices at the refineries may lead to a 1.5% reduction in pump prices. He said gasoline represents about 5% of the Brazilian family’s monthly budget.
Thus, considering the weight of gasoline in the consumption basket, as well as the magnitude of the fuel reduction, in practice this may lead to a 0.08 percentage points (p.p.) decrease in the Extended Consumer Price Index (IPCA) in June and July. The indicator calculated by statistics agency IBGE is Brazil’s official inflation rate.
The economist said the impact of cheaper fuel will be felt in the inflation rate in two different months, due to the day of the announcement made by Petrobras. “Since we are on June 15 [Thursday, when it was announced], this will not affect IPCA-15 for example,” he said, referring to the reading of mid-month inflation index IPCA-15, a barometer for Brazil’s full month official inflation.
Therefore, he continued, the influence will be divided between the inflation rates for June and July, with 0.04 p.p. of reduction impact on this month’s IPCA; and 0.04 p.p. less on next month’s rate.
But the economist does not believe that the reduction in gasoline prices announced by Petrobras will affect the result of the annual IPCA for 2023. He recalled that federal taxes PIS, Cofins, and Cide will be fully reinstated on July 1.
Taxes levied on gasoline and ethanol were reduced to zero by the previous administration during the election period, and partially maintained by the current administration until June 30. Mr. Braz calculates that the effect of the taxes will lead to an increase of between 8% and 10% in the price of gasoline at the pumps. “I think that the consumer won’t even feel the reduction in the price of gasoline,” he said.
Thus, the specialist maintained the IPCA forecast for 2023 at about 5.3%. He recalled that, at the beginning of the year, he and the market expected a rate closer to 6% for the country’s official inflation in 2023. However, the latest readings show decreases and decelerations in retail prices of food, durable goods, and services. This disinflationary process has occurred with greater intensity than the market estimated earlier this year.
In Mr. Braz’s view, the movement of lower prices in these three products and services led analysts to reduce projections for IPCA 2023 –not recent fuel price cuts, he said.
Nevertheless, according to the economist, in the FGV’s IPC, the gasoline reduction will have the same effect as that observed in the IPCA. That is, a 0.04 p.p. decrease in the IPC rates of the General Price Index – Internal Availability (IGP-DI) of June and July. The IPC represents 30% of the total of the FGV’s IGPs. Within the IPC, an indicator of retail inflation, gasoline also weighs 5%, as in the IPCA.
*Por Alessandra Saraiva, Rafael Rosas — Rio de Janeiro
Source: Valor International