Escalating oil prices are the main threat to Brazil

RIO DE JANEIRO, BRAZIL – The first analyses of the consequences for Brazil of the conflict between Russia and Ukraine point to an almost immediate economic impact. Experts alert to the direct effect on Brazilian inflation of the rise in oil prices, which will reach values above US$100.

Petrobras’ pricing policy allows the pass-through of international price oscillations directly to the fuel pumps. On Thursday, February 24, the company reported record profits of R$106 billion (US$19.9 billion) in 2021.

The cascading effect of high fuel prices on the Brazilian economy worries members of the economic team. It should accelerate the pace of Selic (the basic interest rate controlled by Copom, the Economic Policy Committee), with repercussions on other indicators.

The expectation is that the market will once again revise its projections for the increase in the Selic rate, which was 12.25% for the year. Currently, the rate is at 10.75%.

The IPCA forecast, released yesterday by the Brazilian Institute of Geography and Statistics (IBGE), indicates a rise in inflation after three consecutive months of drops in the consumer price index (0.99% in February, compared to 0.58% in January).

No risks are expected in the supply of Russian items imported by Brazil, such as fertilizers and wheat. However, the war context signals a possible increase in the price of these products due to political instability in the region. In general, the situation also puts pressure, on a global scale, on grain and natural gas prices.