Fuel readjustment has a negative impact on current inflation, but it was ‘correct’, says BC president

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Petrobras announced an increase in gasoline and diesel prices for distributors, valid as of this Wednesday (16). A liter of gasoline rose by R$ 0.41, and diesel, by R$ 0.78. The president of the Central Bank, Roberto Campos Neto, said this Wednesday (16) that Petrobras’ decision to readjust fuel prices in the country was “right”, despite having a negative impact “for us”, in this case, for short-term inflation. “Yesterday, we had the readjustment of fuels that will have an impact in the year 2023. I confess that I thought it was right, I think it is right. It is not good to have a very large distance from the price [em relação ao mercado externo], even having an impact that, for us, is negative. For the entities, it was a right decision”, he declared, during a panel at the 35th National Congress of the Brazilian Association of Bars and Restaurants (Abrasel). This Tuesday (15), Petrobras announced an increase in the prices of gasoline and diesel for distributors, valid from this Wednesday. The liter of gasoline increased by R$ 0.41, reaching R$ 2.93, and the liter of diesel rose by R$ 0.78, rising to R$ 3.80 Also on Tuesday, Campos Neto estimated that the fuel readjustment should have an impact of 0.40 percentage points on official inflation between August and September of this year. Before the increase, financial market analysts estimated, last week, an IPCA of 4.84% for this year. In 2023, the inflation target will be considered formally met if the 12-month index fluctuates between 1.75% and 4.75% this year. With the increase in fuel prices, therefore, they have decreased a lot the chances of reaching the inflation target this year – a task that falls to the Central Bank, by setting the basic interest rate for the Brazilian economy. If confirmed, this will be the third year in a row that the inflation target has been exceeded, that is, in which the IPCA is above the ceiling set by the government. In 2022, inflation amounted to 5.79%. The higher the inflation, the lower the purchasing power of people, especially those who receive lower wages. This is because the prices of products increase, without wages accompanying this growth. New pricing policy The readjustment was announced after criticism from private agents that the state-owned company’s prices had “taken off” from the foreign market, in recent months, due to the use of the new pricing policy adopted since May. Analysts pointed out that, as Brazil is not yet self-sufficient in fuel production, having to import part of what is consumed, price detachment could generate a shortage of the product, and cause logistical problems and slow down the economy. According to the Petrobras price rule that was in force before, since 2016, the price of these products in the domestic market followed the international fluctuations of oil and the dollar. In the previous calculation, called the Import Parity Price (PPI), Petrobras considered the value of oil on the global market, the value of the dollar, and logistical costs such as chartering ships, port fees and the use of internal pipelines to transport. In the new pricing policy, the state-owned company started to consider the interval between two market references: the highest value that a buyer can pay before wanting to look for another supplier; and the lowest value that Petrobras can practice in the sale, maintaining the profit. Interest rate definition In early August, the Central Bank’s Monetary Policy Committee (Copom) decided to reduce the Selic rate from 13.75% to 13.25% per annum. This was the first cut in the basic interest rate in three years, which took place after an improvement in inflation in recent months and, also, amid criticism from President Luiz Inácio Lula da Silva. To define the basic interest rate and try to contain the rise in prices, the Central Bank is already targeting, at this moment, the target for next year and the objective, in 12 months, for the beginning of 2025. Selic rate takes six to 18 months to have full impact on the economy. In the communiqué, the Copom also said that, in the next meetings, it may continue making the Selic “reduction of the same magnitude” as that of Wednesday. That is, cuts of 0.5 percentage points. “Confirming the expected scenario [de desinflação e ancoragem das expectativas em torno da meta de inflação]the members of the Committee, unanimously, foresee a reduction of the same magnitude in the next meetings and assess that this is the appropriate pace to maintain the contractionary monetary policy necessary for the disinflationary process”, informed the BC.

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