Competition with ethanol and government actions to subsidize fuels made gasoline cheaper at gas stations. In May, the price fell 1.46%, representing the product that most dragged down official inflation for the month. The Broad National Consumer Price Index (IPCA) for May was 0.58%, as announced by the Brazilian Institute of Geography and Statistics (IBGE), this Friday (12). Related news: Inflation in May is 0.58%, influenced by food prices. INPC, inflation used to adjust salaries, amounts to 4.42% in 12 months. The behavior of the gasoline price meant an impact of -0.08 percentage points (p.p.) on the month's IPCA. The drop follows two months of increases, caused by the conflict in the Middle East, which caused disruption in the international oil chain, making derivatives such as gasoline and diesel oil more expensive practically throughout the world. See the behavior of gasoline prices in Brazil after the start of the conflict, on February 28: March 4.59% April 1.86% May -1.46% IBGE analyst Fernando Gonçalves points out that ethanol was 6.2% cheaper in May, being the second product that most dragged down the IPCA. “It fell due to greater availability”, he explains. Gonçalves explains that the product is more profitable and this makes producers make the sugarcane harvest available for the production of ethanol instead of sugar. With more ethanol on the market, the sales price decreases. “With cheaper ethanol, gasoline, due to competition, also ends up reducing the price”, he adds. Brazil has a large fleet of flex-fuel cars, which allows the driver to choose between gasoline or ethanol when they arrive at the gas station. Grant The other element that helped bring down the price of gasoline is the subsidy policy adopted by the government, a type of reimbursement for fuel producers and importers. The measure is one of the ways for the government to prevent the escalation in the cost of oil derivatives from causing a price shock in Brazil. The subsidy, currently at R$0.44 per liter, is the amount that the government pays to market agents, in exchange for passing on the “discount” to final consumers. In practice, it is as if the government returned to refineries and importers part of the federal taxes charged on fuels, such as the Social Integration Program (PIS), Contribution for the Financing of Social Security (Cofins) and Contribution for Intervention in the Economic Domain (Cide). The measure helped to reduce the impact of a recent increase announced by Petrobras, the country's main gasoline producer. The state-owned company readjusted the price by R$0.48, but only the amount of R$0.04 was passed on to the consumer. Diesel The subsidy policy was also applied to diesel oil, mostly used by trucks and buses. In May, the IBGE recorded a decline of 2.34%, being the fourth product that pushed inflation down the most. In March, the first month of war in the Middle East, fuel rose 13.9%. In April, 4.46%. In diesel, the subsidy reached R$1.52 per liter paid to importers and R$1.12 to producers in May. Shipping still weighs Of the nine groups of products and services surveyed by IBGE, transport ─ which includes fuel ─ was the only one that showed deflation in May, that is, on average, it became cheaper (-0.46%). Despite this behavior, freight still weighed on the month and helped food prices rise 1.33%, with the biggest impact being the rise in May's IPCA (0.29 p.p.) “Freight has fallen, but it is still increasing the price of food,” says Gonçalves. War and price Begun in the last weekend of February, the war between the United States and Israel on Iran had consequences such as attacks on countries neighboring Iran that also produce oil. Another consequence was the closure of the Strait of Hormuz, in southern Iran, which connects the Persian and Oman gulfs. Before the war, around 20% of the world's oil and natural gas production passed through there. With the logistics chain in turmoil, the supply of crude oil and its derivatives decreased worldwide, leading to rising prices. A barrel of Brent, an international price reference, jumped from US$70 to more than US$100, reaching peaks around US$120. Oil is a commodity, that is, a commodity traded at international prices. This meant that the price increase was also felt in Brazil, even though it was a producing country. In the case of diesel, specifically, the country is not self-sufficient, and needs to import around 30% of what it consumes.