Fuel and energy tax cuts expected to ease inflation in 2022

With states announcing a reduction in the tax rate ICMS about Gasoline and electricity – after the federal government has already zeroed PIS/Cofins on gasoline and ethanol –, economists began to review their projections for the inflation. Some institutions expect, for the year, an IPCA up to 1.5 percentage points lower than previously projected. For 2023, however, estimates are expected to rise, due to the return of PIS/Cofins collection starting in January.

Santander’s preliminary calculations, for example, indicate that the IPCA should be close to 8% in 2022 and 5.7% in 2023. Before, the bank estimated 9.5% and 5.3%, respectively. Itaú Unibanco, on the other hand, revised its 2022 figure from 8.7% to 7.5%. The price index coordinator of the Getulio Vargas Foundation (FGV), André Braz, also reduced his estimate, from 9.2% to 8.5%. Sergio Vale, chief economist at MB Associados consultancy, for the time being, has 8.7% for this year, but says he thinks “it could be less”.

The biggest impact of the ICMS reduction should be observed in July, a month that can register deflation. According to Daniel Karp, from Santander, in comparison with June, the IPCA can fall by up to 1% in the month if all states end up reducing the tax rate.

The economist considers that about 75% of the tax cut will reach the final consumer. The tendency, he explains, is for the population to spend what they save with fuel with other items. “This tax cut ends up being a fiscal stimulus that can sustain demand, which was already surprising positively.” If there were no such stimulus in demand, the tax reduction could make inflation reach 7%, says Karp.

For Sergio Vale, however, the big surprise in inflation this year should come more from the price of foods than for fuel and energy. “The crops are going well. There are signs that this could help with inflation.”

Return of tax and exchange rate should push inflation in 2023, say economists

If the tax cut alleviates inflation this year, the change should mean a rise in 2023. When the federal government zeroed the PIS it’s the Cofins on ethanol and gasoline, Itaú Unibanco has already raised its estimate for the Extended National Consumer Price Index (IPCA) for next year from 4.2% to 5.6%. The review was made because the collection of taxes will resume from January, pushing prices up again, and also because of the feeling that inflation was already more widespread in the economy.

For the chief economist at MB Associados, Sergio Vale, inflation next year “is on track to be between 5% and 6%”. “In the short term, there may be a drop in inflation. But I have difficulty knowing whether this fall will not be limited due to the scenario of exchange.”

Vale’s concern is that the decrease in revenue will trigger greater market distrust regarding the government’s ability to pay its debts. This could make part of the investors leave the Brazildevaluing the real in relation to dollar – which would put pressure on inflation.

tax issue

The economist also states that the fiscal situation should remain under control this year, given that the collection is on the rise due to the increase in the price of commodities. The obstacle may come in 2023, as the forecast is that the world economy will start to slow down, causing the price of commodities to fall – reducing the collection as well. “The most complicated thing is that you are cutting something (the ICMS) permanently. Then, next year, the rate will be lower on top of a lower collection as well. This puts weight on the fiscal situation,” says Vale.

For economist Daniel Karp, from Santander, it is still difficult to calculate how the fiscal issue will interfere with inflation, given that the international scenario can also change the exchange rate.

In the view of economist André Braz, price index coordinator at Fundação Getulio Vargas (FGV), “any measure that does not last for 2023 ends up imposing higher inflation next year”.

Braz highlights that global uncertainties may also pressure prices in 2023, as has already occurred this year. He recalls that, at the beginning of 2022, economists were optimistic about inflation and did not imagine that it could reach close to 10%. the war in Ukraine, however, took oil prices and inflation to another level. “This could be repeated next year depending on how these sources of uncertainty unfold and how this fiscal issue will turn out.”

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

Check Also

Microcredit of up to BRL 3,000 has a MAXIMUM term to be requested; know more

At a time of economic crisis, many people had to resort to bank loans to …