Bloomberg News

Brazil Cuts Gasoline, Diesel Taxes to Offset Petrobras Increases

October 28, 2011

(Updates with Petrobras statement in third paragraph.)

Oct. 28 (Bloomberg) -- The Brazilian government slashed taxes on gasoline and diesel to offset price increases by Petroleo Brasileiro SA, in a move that could help the central bank hit its 2011 inflation target.

The so-called Cide tax will fall to 0.091 reais ($0.05) per liter, from 0.192 reais, while the tax on diesel will drop to 0.047 reais per liter to 0.07 reais, the Finance Ministry said in an e-mailed statement. The reductions take effect from Nov. 1 and expire on June 30 next year.

In a separate statement, the state-controlled oil company said it would increase gasoline prices by 10 percent and diesel by 2 percent, excluding taxes, from the same date.

The tax cuts mean prices at gas pumps won’t rise, the Finance Ministry statement said.

“The government is neutralizing the increase in costs of these products, keeping the prices to the consumers unchanged,” the statement said.

Petrobras rose 3% to 21.58 reais today in Sao Paulo.

Economists are split on whether the central bank will miss its inflation target this year. Analysts expect consumer prices to rise 6.5 percent, the upper limit of the inflation target range, according to the median forecast in an Oct 21 central bank survey. Fuels have a 4.6 percent weighting in Brazil’s benchmark IPCA inflation index.

Consumer prices rose 7.12 percent in mid-October from a year earlier, down from 7.33 percent in mid-September, the first time the inflation rate had slowed in 14 months. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

Crude for December delivery has risen 18 percent this month. The real appreciated 2.3 percent against the dollar today, to 1.6721. The currency has weakened 7 percent since the end of July, the second-most of seven major Latin American currencies tracked by Bloomberg, adding to inflationary pressure in the world’s seventh-largest economy.

--Editors: Philip Sanders, Richard Jarvie

To contact the reporter on this story: Helder Marinho in Sao Paulo at hmarinho@bloomberg.net; Matthew Bristow in Brasilia at mbristow5@bloomberg.net.

To contact the editor responsible for this story: Francisco Marcelino at mdeoliveira@bloomberg.net.


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