Gasoline price: what is the balance of the Lula government so far and what to expect in the coming months – 01/06/2023 – Market

A change in the collection of the Tax on Circulation of Goods and Services (ICMS) by the states made gasoline more expensive in most of the country as of Thursday (1st).

The estimation of experts heard by BBC News Brasil is that this will increase the price charged at the pump by R$ 0.17 in 23 of the 26 Brazilian states and in the Federal District.

Before, the ICMS added R$ 1.05 to the price of gasoline in these places, but now it should go to R$ 1.22 – in a unified way throughout the country.

The three exceptions are Amazonas, Alagoas and Piauí, which had a rate higher than R$ 1.22, and, with the change that makes this value a rate throughout Brazil, they will see a drop in the price of gasoline.

On the national average, this ICMS change should, in practice, nullify the drop in prices announced by Petrobras in mid-May, according to calculations made by economists at the request of the report.

In practice, this means that gasoline has become more expensive since President Luiz Inácio Lula da Silva (PT) took office, on January 1, and had an increase that is well above inflation until the month of May.

What is the balance of the Lula government?

Experts point out that, with the change in ICMS, the average price of gasoline in Brazil should remain at R$ 4.67.

Considering the December average of BRL 4.30, released by the National Petroleum Agency (ANP), the balance of the first five months of the Lula government is an increase of 8.6% in relation to the last month of the Jair Bolsonaro government. (PL).

This is more than double the previous official inflation accumulated until May, of 3.12%, calculated by the Brazilian Institute of Geography and Statistics (IBGE).

Upon taking office, Lula extended for two months the federal tax exemption (PIS/Cofins) on fuel that had been applied by Bolsonaro in June 2022.

Taxes were collected again in March, making fuel more expensive.

In May, fuel prices fell after Petrobras announced a change in its pricing policy.

Adopting a new pricing policy at the state-owned company was a campaign promise by Lula.

The rules that were in force since 2016 closely followed fluctuations in the value of oil on the international market.

The new policy started to take into account some domestic factors, but will continue to follow international parameters.

Now, the new ICMS billing format should nullify this gain for the consumer.

“One overlaps the other”, explains André Braz, economist and researcher at FGV IBRE (Brazilian Institute of Economics).

At the refinery, the drop in gasoline after the change announced by Petrobras was 12.5%, according to the economist’s calculation.

The expectation, explains Braz, is that half of this reduction – about 6% – will reach the gas stations in a period of one month – the stations are free to define their own prices.

But, due to the announcement date, May 17th, half of this drop (3%) would occur in May and the other half, in early June.

According to the most recent data from the ANP, the month of April closed with an average gasoline price (taking into account all states) of R$ 4.82.

In May – which still does not have official data from the ANP -, says Braz, the expectation is that, with the 3% drop in the first impact of the change in Petrobras, the price will close around R$ 4.67.

With a drop of another 3% expected for the month of June, the economist calculates that this would result in an average price of R$ 4.52 in June.

But, as the increase in ICMS should make gasoline R$ 0.15 more expensive at the pump, the average price would once again be R$ 4.67 at the pump, points out Braz.

“In conclusion, back to the value of May – one neutralized the other.”

What to expect in the coming months

The analysts interviewed by BBC News Brasil are that the price of gasoline may fall again in the coming months, although the effects of Petrobras’ new pricing policy are still murky.

According to a former ANP director, the announced criteria “are vague” and, in practice, do not make it clear what the trend will be after the first cuts announced in May.

Although the new policy is less subject to changes in oil prices on the global market, this is still a factor taken into account in the calculation.

But there is a limit to how much the government can handle a possible transfer of high costs in the foreign market, in the assessment of the former director of the ANP.

Economist Mirella Hirawaka, from Az Quest, points out that prices have already fluctuated between a similar price range in recent months.

“There is room for a drop in gasoline prices that still fluctuate within this range that was recently signaled as Petrobras’ new pricing policy.”

The economist explains that, based on the price of oil that is imported and exported by Brazil, it is possible to delimit a band for the variation in the price of gasoline.

The highest value would be the price parity with what was charged on imports and the lowest, the parity with what was charged on exports.

According to Hirawaka, the current price is below the maximum, but above the minimum, which makes room for cuts.

That space, calculates Hirawaka, is 5% to 10% of the price of gasoline charged at refineries – and half of that would reach the pumps.

Braz does not rule out that this is used by the government to reduce the price of fuel, which is usually decisive for the popularity of those in the Planalto.

“Governments have been using this type of device for many years, and this is not a privilege of the right or the left. Having an ace up your sleeve is a device to try to reduce possible dissatisfaction and gain a little more popularity and sympathy.”

According to the FGV IBRE economist, the recent appreciation of the real against the dollar could also contribute to a drop in prices.

“Another point that affected the forecast [do preço da gasolina] and that wasn’t on the radar, precisely because you can’t anticipate much, is the drop in the price of a barrel of oil”, says Braz.

The barrel of Brent oil closed on Wednesday (31) at US$ 72.60 – a drop of 15.5% since Lula took office.

In addition, Braz claims that the increase in interest rates in several countries to contain inflation has reduced the demand for petroleum products.

“We knew that the world – not just Brazil – was moving towards a deceleration of inflation, it is not only high in Brazil, and this affected the price of a barrel”, explains Braz.