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Brazil cuts tax on petrol imports
Brazil’s government has been forced to cut taxes on petrol imports as the country struggles to keep a lid on inflation, with national strikes over pay threatening to boost prices even higher in Latin America’s biggest economy.
The government announced on Tuesday that it would reduce the so-called CIDE tax, which applies to imports and sales of petrol to distributors, by 16 per cent – a move that will allow the country to maintain vital government price controls at the pumps.
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The tax cut should also help cut losses at Petrobras, the state-run oil company, which has had to import greater volumes of petrol to meet surging demand from Brazil’s growing middle classes, but has been banned from passing on its higher costs to consumers.
“Inflation is still a big concern. It’s been at elevated levels for the last few months and the expectation is that prices will remain under pressure,” said Marianna Costa, chief economist with Link Investimentos in São Paulo. “Unemployment is very low which boosts labour costs ... there’s not much the central bank can do this year.”
Brazil’s annual inflation rate continued to climb during the first half of September, hitting 7.33 per cent and again exceeding the upper limit of the central bank’s target range of 6.5 per cent.
Economists are now predicting that the central bank will also fail to keep inflation within the target range by the end of this year, a situation that could prove politically dangerous for Dilma Rousseff, the new president.
beyondbrics: Brazil cuts petrol tax as global storm clouds gather
Hyperinflation during the 1980s and early 1990s crippled Brazil and the central bank’s decision inAugust to resume cutting interest rates even as inflation continued to rise shocked economists and left many nervous.
However, Alexandre Tombini, central bank president, has stood firm and reiterated in a presentation to the senate on Tuesday that 12-month inflation would start to ease in the fourth quarter of this year.
Although the fresh crisis in global markets has helped to ease commodity price rises, Brazil is struggling with long-term inflationary pressures such as record-low unemployment, which has given employees more bargaining power to push up wages.
Bank workers on Tuesday became the latest to strike over pay, following protests from the postal service and metalworkers earlier this month, demanding a near-13 per cent salary increase.
“Inflation expectations for next year have also got worse because of these wage concerns,” said Ms Costa, adding that the recent weakness of Brazil’s currency had added to price pressures by making imports more expensive.
Fuel prices have come under particular scrutiny after the government recently cut the blend of ethanol in all petrol to 20 per cent from 25 per cent because of low ethanol supplies, meaning motorists will consume even more gasoline.
Under the new decree published on Tuesday, the CIDE tax on petrol will fall to R$192.60 per cubic meter from R$230 ($127), making it cheaper for companies such as Petrobras to import the fuel without stoking inflation.
Brazil’s government also temporarily reduced the CIDE tax in 2008 and 2010 to avoid having to raise pump prices in tandem with global crude prices – a policy it has followed for the past eight years.
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