Bolsonaro says that Brazil will have deflation due to the reduction in fuel prices

Wednesday, August 03, 2022 | 11:22 a.m.

The president of Brazil, Jair Bolsonaro, stated that the country, the largest Latin American economy, will experience deflation in the coming weeks as a result of the reduction in taxes on the price of fuel and electricity, although the annual inflation target will be double what was projected by the Central Bank.

“We must have the greatest deflation in history since the Real Plan” of 1994, Bolsonaro told the official private channel SBT, highlighting laws that Congress approved to reduce state taxes on gasoline by half, which caused, also, the underfunding of education and health budgets.

A study by the private university FundaciĆ³n Getulio Vargas (FGV) indicated that Brazil should have deflation in the Extended Consumer Price Index (IPCA) for July and that this situation will probably repeat itself in August.

The index for the fourth week of July taken by the FGV had a deflation of 1.19%.

In June 1998, Brazil had the largest monthly deflation (-0.51) in history since the implementation of the Real Plan.

On August 9, the official inflation index for July will be released by the Brazilian Institute of Geography and Statistics (IBGE).

The average price of fuels returned to the levels of August 2021 with the tax cut, since the government avoided changing the international price parity policy of the state oil company Petrobras, which is generating extraordinary profits for private shareholders.

Analysts indicate that this reduction should not include food prices, which continue to rise.

Bolsonaro told SBT that the rise in food prices is due to policies against the pandemic such as movement restrictions determined by governors to reduce Covid-19 infections, with Brazil being the second country in deaths (679,010), behind USA.

A third of the Brazilian population cannot buy food to eat daily, according to a survey by the Datafolha institute published on Tuesday.

On Monday, in the Central Bank’s weekly bulletin Focus, the financial market reduced the forecast for official inflation this year from 7.30 to 7.15%, while for 2023 it went from 5.30 to 5.33%.

The official goal is an inflation of 3.50% in 2022 and 3.25% next year, in both cases with a 1.5% tolerance

The financial market raised its forecast for the GDP growth of Argentina’s main partner in 2022 from 1.93 to 1.97%.

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