Understand the diesel price hike and how it affects the economy

The rise in the price of diesel fuel spreads a series of consequences in different sectors of the Brazilian economy: from the transport of cargo and passengers to the production of food in the countryside.

This year, the fuel has already accumulated a 65% increase in Petrobras refineries, which generates pressure to the pumps at the stations.

The more expensive diesel, by raising the costs of transporting cargo on the highways, led to a wave of criticism from truck drivers of the state-owned price policy.

Part of the category even organized a strike earlier this month, but the stoppage did not gain substance.

When setting fuel prices in refineries, Petrobras takes into account the behavior of oil in the international market and the variation of the dollar. This is a parity policy.

With the recovery of the world economy, after restrictions to brake Covid-19, the demand for oil increased over the months. Thus, the price of a barrel started to rise, impacting prices in Brazil.

In addition, the advance of the dollar, above R$ 5, creates additional pressure for fuels.

“The real is devalued. The mismatch against the dollar is reflected in prices,” says economist Marcio Sette Fortes, a professor at Ibmec-RJ.

Between October 31 and November 6, the average value of diesel at Brazilian gas stations was R$ 5.339 per liter, indicates a survey by the ANP (National Agency for Petroleum, Gas and Biofuels). The brand represents an advance of 47.2% compared to the end of last year (R$ 3.628).

Higher diesel also increases expenses for companies that carry passengers. On October 28, urban bus operators criticized the federal government and Petrobras’ pricing policy.

“The price of diesel shows that the government wants the bus to be crowded and the service poor,” stated the NTU (National Association of Urban Transport Companies), which represents the sector, at the time.

The increase in the input occurs when passenger transport tries to recover from the shock caused by the pandemic. According to NTU, urban bus operators are experiencing a accumulated loss of at least R$17 billion during the health crisis.

“The omission of the federal government regarding the successive readjustments of diesel oil, an input that represents an average of 26.6% of the cost of public transport, is forcing the insolvency of the operating companies”, said the NTU.

In the countryside, fuel is an input for the operation of agricultural machinery, in addition to being used to transport goods in trucks. In other words, when it goes up, it makes food production costs more expensive.

“High diesel has a medium and long-term effect on the economy, greater than that of gasoline. It impacts from cargo and passenger transport to industrial and in natura goods”, says economist Matheus Peçanha, from FGV Ibre (Brazilian Institute). of Economics of the Getulio Vargas Foundation).

According to him, the fuel tends to remain at a high level at least until the beginning of next year.

The perspective is related to the process of reopening the international economy. The movement should continue in the coming months, keeping the demand for oil heated, according to the researcher.

Amid rising prices in Brazil, the Confaz (National Council for Finance Policy), a collegiate that brings together the federal government and state and Federal District finance secretaries, approved the freezing, until the end of January, of the ICMS value ( Tax on Circulation of Goods and Services) levied on fuel sales.

According to experts, the measure has a limited effect, as it does not prevent new advances for the consumer.

“The perspective is that fuels will continue under great pressure. The ICMS is not the cause of the increase in prices. What causes the increase is the increase in the barrel of oil and the dollar,” says Peçanha.

The American currency regained strength in the final stretch of this year with the scenario of fiscal uncertainties. Doubts about public accounts increased after the federal government decided to circumvent the spending ceiling to pay Brazil’s Auxílio.

“We are in a scenario of economic recovery in the world, and there may be a new rise in oil prices. This could be offset with the dollar at a lower level”, analyzes Fortes.

The advance of fuel puts pressure on President Jair Bolsonaro (non-party) on the eve of the election year. In recent weeks, Bolsonaro began to criticize Petrobras, even saying that the state-owned company should have a “social bias” and profit less.

The company, in turn, argued that its positive results benefit society as a whole, with the distribution of dividends to the Federal Government, payment of taxes and investments.