Reduction in gasoline eases inflation, but pressure remains on food

The average weekly price of a liter of gasoline in Brazil accumulated the fourth consecutive drop, according to the National Petroleum Agency, Natural Gas and Biofuels

The reduction in prices of electricity billgives Gasoline It’s from ethanol after the action of federal government to reduce taxes – both federal and state – already produces the first reliefs in the inflation to the consumer, but the increase in other items, such as foodsmay disrupt the positive feeling, show data released this Monday, 18.

The average weekly price of a liter of gasoline in Brazil accumulated the fourth consecutive drop, according to the National Agency of Petroleum, Natural Gas and Biofuels (ANP). It dropped 6.5% on average in the week of July 10 to 16, to R$ 6.07 a liter. Further reductions should come, as São Paulo and Minas Gerais announced yesterday a cut in ICMS on ethanol. The residential electricity tariff dropped 2.29% in the Consumer Price Index – Weekly (IPC-S) of the second four-week period in July, released yesterday by Fundação Getulio Vargas (FGV), helping the indicator to stay at 0.24%.

As a counterpoint, in the General Price Index – 10 (IGP-10) for July, also released yesterday by the FGV, the Food group was the only one of the eight classes of expenditure that accelerated in July. On average, it rose 1.48%, compared to 0.42% in June. The item “dairy products” jumped 8.81%. Long-life milk became 16.74% more expensive.

Even so, the expectation is for deflation (falling prices) in July. Thanks to the exemptions, market economists predict a drop of 0.46% in the IPCA (the official inflation index) for July, according to the Market Focus Report released yesterday by the Central Bank – a month ago, before the definition of the tax reduction , pointed to a rise of 0.43%.

André Braz, coordinator of Price Indices at the Brazilian Institute of Economics at FGV, believes that the drop in consumer price indices could reach 1.0% in July, “but it will be very concentrated in energy and gasoline”. The aggregate indices decline because fuel and electricity bills together account for about 10% of the average shopping basket, recalls Braz.

Even so, there are risks ahead. The main one is associated with the dollar’s bullish outlook. To combat the highest inflation in 40 years, the Federal Reserve (Fed, the US central bank) has been raising interest rates, which tends to attract global capital flows to the US, making the dollar more expensive worldwide. Here, the rise can be boosted by prospects of an increase in the imbalance of government accounts, recalls Braz.

dollar worries

A more expressive rise in the dollar would moderate the relief with the fall in international prices of raw materials – such as iron ore, wheat, soybeans and corn and oil. The exchange rate affects food prices – corn, soy, wheat and meat are quoted in dollars, even though Brazil is a major producer. And food prices mainly affect the budgets of lower-income families, which, says Braz, could make the fuel relief more felt among higher-income families who own a private car.

Economist at the Institute for Applied Economic Research (Ipea), Maria Andreia Lameiras notes that, in addition to an eventual rise in the dollar, there is a risk in the resumption of the post-pandemic service sector in the wake of the recovery of the wage bill. With businesses such as bars and restaurants operating normally again, prices for these services may rise.

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