ICMS reduction could lower inflation this year and increase in 2023, says Bradesco

With the approval of the measures announced by the federal government to promote a drop in fuel prices, this year’s IPCA (Broad Consumer Price Index) would be at 6.8% and not 9% as predicted by Banco Bradesco, but would rise to 5, 1% in 2023, up from the 4.1% expected today. The likely scenario was disclosed recently in a report signed by the bank’s chief economist, Fernando Honorato Barbosa.

The analysis recognizes that many countries are taking steps to contain the inflationary effect of rising oil. He considers, however, that the choice to process a PEC to allow more expenses with compensation for loss of revenue “is slow and brings risks”. Not counting the adoption of tax measures, Bradesco projects a public sector surplus of R$ 40 thousand this year.

“However, if all these announced measures are approved, the consolidated primary result could be up to R$45 billion in deficit, assuming that there are no new surprises with the collection.

In this case, the IPCA could reach 6.8%, with an increase of 1p.p. next year. Our exchange rate expectation would also likely be adjusted, reflecting increased fiscal risk. Therefore, it will be necessary to wait for the text of the PEC and its processing to be able to calibrate the projections of the scenario”, says the document.

The doubt about the formulation of the Proposed Amendment to the Constitution does not allow the market to assess the size of the fiscal impact on the accounts of the states and the federal government. Minister Paulo Guedes said in the announcement with President Bolsonaro that the details will be defined “soon”, and pointed to an approximate cost of R$ 40 billion for the National Treasury.

“In principle, the PEC would only be in effect until the end of this year, so the inflation relief would be recomposed in early 2023, bringing a lot of volatility to these projections”, says the analysis of Bradesco economists.

Many economists had already calculated a drop in the IPCA if the ICMS limitation of 17% for fuel and energy was approved by Congress, through the PLP-18. Now, with the new proposal, the impact could be greater as long as Petrobras does not decide on new price adjustments for gasoline and diesel. The gap between the two remains high, according to Abicom, which represents importers.