After 2nd month of deflation, economists say result should not be sustained

posted on 09/10/2022 03:30

  (credit: Carlos Vieira/CB/DAPress)


(credit: Carlos Vieira/CB/DAPress)

Once again under the impact of the tax cut and the reduction of fuel prices in refineries announced by Petrobras, the Broad National Consumer Price Index (IPCA) registered deflation for the second consecutive month. In August it was -0.36%, after the decrease of -0.68% in July, as announced yesterday by the Brazilian Institute of Geography and Statistics (IBGE). Thus, 12-month inflation dropped from the double-digit level for the first time in almost a year: it dropped from 10.07%, accumulated until July, to 8.73%.

The impact of the drop in fuel prices was significant. The four items that are directly or indirectly part of the Brazilian’s life — vehicular gas (-2.12%), diesel oil (-3.76%), ethanol (-8.67%) and gasoline (-11.64% ) — had reduced prices. In addition, the transport group, in general, had a decrease of -3.37%, which contributed -0.72 percentage points (pp) to the final result.

The sharp drop in fuel prices is a result of the approval of the Tax on Circulation of Merchandise and Services (ICMS) ceiling for the input, whose law was sanctioned on June 24 by President Jair Bolsonaro (PL). In addition, the four reductions made by Petrobras in the last two months — the result of the drop in the international price of oil — contributed to the result.


inflation

inflation
(photo: afp and pacific)

Because they do not consider the fall in prices sustainable, experts believe that negative inflation will be temporary. “It is not because we had two months of deflation that inflation control is perfect. , warns economist Antônio Carlos Alves dos Santos, a professor at the Pontifical Catholic University (PUC) of São Paulo.

In addition to the reduction in ICMS and the drop in the barrel of oil, another government decision that affects fuel prices is the absence of PIS/Cofins and Cide taxes on fuels. During the CB.Poder hearing last Thursday, Bolsonaro said, if reelected, that he should keep these two taxes at zero for 2023.

But for William Baghdassarian, economist and professor at Ibmec-DF, the return of these two taxes could raise fuel prices by around R$ 0.80. Considering the October elections, the next president will decide whether the Union will continue to lose revenue.


“If taxes go back, we talk about something around R$ 0.80 of increase. And so there may be inflation, if the price of a barrel of oil in the international market does not fall”, he warns.

The reduction in the price of fixed and mobile telephony plans was also another factor that boosted the August deflation. According to the IBGE, the “Communication” group had a drop of -1.10% last month. Fixed telephony plans in the period had a negative balance of -6.71%, and mobile telephony, -2.67%.

Foods

Another highlight of the survey was the deceleration of the food and beverage group, which went from a high of 1.30% in July to 0.24% in August. According to the IBGE, there was almost stability in the “food within the home” component, which registered a rise of 0.01%. On the other hand, “food away from home” had an inflation of 0.89%.

The survey shows that there was a drop in the price of long-life milk, which in July increased by 25.46% and, in August, dropped by 1.78%. Other items that fell in price: tomato (-11.25%), potato (-10.07%) and soybean oil (-5.56%).

In the opposite direction were cheese (2.58%) and fruit (1.35%). The chicken in pieces was startling: it shot up 2.87%, a result that, according to Aurelio Troncoso, economist and coordinator of the Unialfa Master’s Research Center, is a consequence of the increased demand for food. “As beef is very expensive, people opt for chicken,” he explains.

*Intern under the supervision of Fabio Grecchi

About Abhishek Pratap

Food maven. Unapologetic travel fanatic. MCU's fan. Infuriatingly humble creator. Award-winning pop culture ninja.

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