Brazil’s state-controlled oil company Petroleo Brasileiro SA jacked up domestic fuel prices to reduce a cost gap with international markets, a move that is likely to speed up inflation while pleasing investors.
(Bloomberg) — Brazil’s state-controlled oil company Petroleo Brasileiro SA jacked up domestic fuel prices to reduce a cost gap with international markets, a move that is likely to speed up inflation while pleasing investors.
Petrobras, as the oil giant is known, announced Tuesday it would raise the wholesale price of gasoline by 16% per liter, and diesel by 26%. Following a recent rally in global crude prices, the adjustment became necessary to “rebalance with the market and the marginal values” of the company, Petrobras said in an accompanying statement.
The magnitude of the adjustment surprised many analysts, who expect Brazil’s consumer price growth to accelerate as a result. Economists from JP Morgan Chase & Co raised their August inflation forecast to 0.19% from 0.12%, and September’s to 0.36% from 0.25%.
The “large increase” will have an inflationary impact of 0.40 percentage points in August and September, central bank chief Roberto Campos Neto said during an event in Brasilia, adding that it would lead to upward revisions in expectations for Brazil’s benchmark index.
Petrobras shares jumped as much as 4.9% in Sao Paulo as investors welcomed the announcement.
The move “shows Petrobras will likely not meaningfully subsidize fuel prices in Brazil and imports into the country will likely remain profitable, thus keeping the market well supplied,” Goldman Sachs analysts said in a report.
Despite pressure from investors and importers, Petrobras sold fuels below international levels for much of this year.
Chief Executive Officer Jean Paul Prates has pushed back on claims that the oil company — the main supplier for domestic fuel distributors — was trying to soothe consumers’ pain at the pump and help President Luiz Inacio Lula da Silva fulfill a campaign promise to boost living standards for Brazilians.
Read More: Petrobras CEO Prates Says Lula Hasn’t Intervened in Fuel Prices
Tuesday’s increase to Petrobras’s refinery gate prices reduces the discount to international levels to 22% for diesel and 9% for gasoline, according to the Centro Brasileiro de Infraestrutura, a consultancy.
Brazil’s statistics agency is set to release mid-August inflation data next week.
–With assistance from Peter Millard and Maria Eloisa Capurro.
(Adds comments from central bank chief, market reaction and analyst comments from fourth paragraph.)
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