consumer prices in Brazil They yielded 0.68% per month in July, the largest drop since the beginning of the historical series in 1980, with which they accumulated 10.07% in 12 months, the official statistics institute (IBGE) reported on Tuesday.
The figure, which represents the first drop in the inflation since May 2020, contrasts with the process of hikes that Brazil is going through and that has given rise to strong increases in the interest rate since last year.
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The good data for July is due, in part, to the reduction in the prices of fuels applied by the state oil company Petrobras and the law that set a ceiling on fuel taxes, the person responsible for the report, Pedro Kislanov, explained in a statement.
Inflation in the largest Latin American economy reached 12.13% in April, the highest level since 2003, and thanks to the slowdown in recent months it stood in July at practically the same 10.06% as last December.
Specifically, the rate for July “was mainly influenced by the Transportation sector, which had the most intense drop (-4.51%), and contributed with the greatest negative impact (-1.00 percentage point) on the index”, detailed the IBGE in a statement.
The decline in this category is explained by the reduction in fuel prices (-14.15%) in the period, he added.
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Concerned about the constant increases in the face of the October elections in which President Jair Bolsonaro will seek re-election, the government promoted a reduction in state taxes that contributed to this drop.
In addition, the state-owned Petrobras applied several cuts after Bolsonaro changed his president for the third time at the end of June, after criticism of the company’s pricing policy.
In fact, Petrobras reduced this week the prices of the gasoline for the second time in as many weeks. Brazil’s oil giant cut gasoline prices at its refineries to 3.71 reais ($0.71) per liter from 3.86 reais as of Friday, the company said in a statement.
That should see gasoline prices down 8.6% from before Petrobras started cutting prices on July 19.
Another notable drop in July was that of residential electricity (-5.78%), as a result of a tariff and tax reduction.
The drop in prices in July placed the rate in the first seven months of the year at 4.77%, close to the limit of the Central Bank’s goal of 5% for 2022.
In addition, the July indicator was lower than the expected median of -0.65% of almost 40 financial institutions and consultants surveyed by the economic newspaper Valor.
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hikes in food
Despite the decline in the general index, food and beverages continued to climb, with a rise of 1.30%, driven, among other things, by the 25.46% increase in long-life milk. The accumulated value of the item in 12 months climbed to 14.72%.
These advances have a special impact on the pockets of the most vulnerable population, who spend most of their income on basic goods to survive.
Inflation, in double figures in 12 months since September 2021, has undermined Bolsonaro’s popularity, who is lagging behind in the electoral race against former left-wing president Luiz Inácio Lula da Silva.
The accumulated advance in prices has motivated an increase in government aid from the Aid Brazil plan from a minimum of 400 to 600 reais (around 117 dollars at the current exchange rate), from this month to December, to 20.2 million vulnerable families .
Aid will also be paid for gas to families and support for truckers, a key sector in electoral support for Bolsonaro in the 2018 elections.
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Interest rates
And it is that high inflation in Brazil gave rise to a cycle of 12 increases in interest rates by the Central Bank of Brazil (BCB) that has left its reference at 13.75%.
The BCB began this upward path in March 2020 to curb inflation, driven by internal uncertainties and the impact of the pandemic on global prices, exacerbated since last February by the war between Russia and Ukraine.
Analysts have pointed out that the effect of the monetary authority’s policy would be visible, especially in the second half of the year.
For the next meeting, in September, the BCB still foresees a “residual adjustment” in the Selic rate.
But economists worry that the combination of high borrowing costs and inflation will cause a recession later this year, and that Bolsonaro’s actions will push up prices in the long run.
*With information from AFP, Efe and Bloomberg
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