The index can go to lowest annual level since 2020, also because of fear of global recession

08/16/2022

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André Braz — Foto: Leo Pinheiro/Valor

The 4.85% drop in gasoline prices at the distributors, announced Monday by Petrobras, may lead the country’s official inflation to a rate below 7% this year, said André Braz, an economist at Fundação Getulio Vargas (FGV). “This is already starting to become more probable [the rate below 7%],” he said, recalling that the market’s previous projection was between 7% and 7.2%. If confirmed, it could be the lowest annual inflation level since 2020 (4.52%). Brazil’s benchmark inflation index IPCA ended 2021 up 10.06%. The impact of cheaper gasoline, he added, will not be restricted to the annual rate: he said that the monthly IPCA for August may end the month with a decrease of around 0.3% — the projections for the rate were around a 0.2% deflation.

In practice, he pondered, the announced decrease reflects a wider phenomenon: the fear of global recession, lowering the price of commodities in the international market, such as petroleum — with an effect on its products, such as gasoline. With this in mind, he did not rule out new price changes in fuel by Petrobras, by the end of the year.

When talking about the decline, the specialist stressed the strong weight of gasoline in the formation of inflation by the indicator. The product has a weight of 6.5% in the IPCA. “But this drop of 4.85% will not be passed on in full [to retail],” he said.

The specialist’s calculations point out that at least half of this decrease may reach the pumps. Therefore, considering the product’s weight in the indicator, as well as the portion of the drop that may be passed on, the total impact on the IPCA will be a decrease of 0.15 percentage points “for 30 days,” he said.

Therefore, as the decrease in fuel prices will come into effect this Tuesday, the specialist projects a drop of around 0.07 percentage points (p.p.) in the August IPCA; and around 0.07 p.p. in the September IPCA.

Mr. Braz added that the decrease in gasoline prices has a greater impact on the IPCA than the 4% drop in diesel prices announced by Petrobras last week. “Diesel weighs only 0.3% in the IPCA, and this drop is likely to have an impact, a decrease of 0.01 percentage point on the indicator in 30 days [from the effective date on August 12],” he said.

However, for the specialist, both gasoline and diesel have the potential for new price decreases in the domestic market. This is because the baseline scenario abroad is increasingly one of a global recession.

The economist recalled the inflation rise in the United States, which led the U.S. to a new round of interest rate increases — which, in turn, hinders consumption and, consequently, the growth pace of the American economy. At the same time, China’s real estate market, strongly linked to China’s GDP, is showing difficulties at the moment, which “may bring new surprises in the field of commodities,” he said, without ruling out new price slowdowns, or even downturns, in this type of product.

Another aspect cited by Mr. Braz is the fact that the signs of deceleration are not only from China and the United States. Other regions, such as Australia and Europe, are also showing signs of the same phenomenon. “The major economies are showing signs of deceleration,” he warned, reiterating that this, in practice, helps to bring down oil prices — and therefore reduce the price of oil products in Brazil.

*By Alessandra Saraiva — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/