Cheaper gasoline raises expectations of deflation in July and reduces IPCA by 0.15 point

The reduction in the price of gasoline announced by Petrobras this Tuesday (19) should contribute to a 2% reduction at the pump. As a result, the IPCA should fall 0.05 percentage point in July and 0.10 percentage point in August, according to calculations by economist André Braz, responsible for the FGV (Fundação Getulio Vargas) inflation indices.

Gasoline has a weight of approximately 6.5% in the IPCA, which is the official index of consumer inflation, measured by the IBGE and used as a reference by the Central Bank for monetary policy.

​Braz explains that the IPCA collection for July ends in ten days. Therefore, only this last third of the price sample will capture the drop announced by Petrobras. The remaining two-thirds will be captured in August.

If the readjustment were fully captured in July, it would indicate that drivers had prices at this level since the beginning of the month, which is not the case, says the economist.

He projects a 0.35% deflation in the July IPCA, which will be released in early August, but says that the number may be revised downwards until then.

In four weeks, the projections for the inflation index in the Focus survey went from a high of 0.43% to a deflation of 0.46%. The median of forecasts from surveyed economists who made updates just last week is -0.58%. Some houses already project a drop of up to 1% in the IPCA for the month.

The projection for the IPCA for 2022 fell from 8.27% to 7.54% in four weeks. For 2023, it rose from 4.83% to 5.20%, indicating that the inflation target was exceeded for the third year in a row.

The July deflation is being driven mainly by the change in ICMS approved by Congress and which has already been regulated by some states. Part of the exemptions, however, are temporary and only transfer part of the inflation of the election year to the following period.