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JPMorgan Trim Year-End CPI Forecast To 5.4% Following Petrobras Announcement

BRAZIL
  • On Tuesday, Petrobras announced a new pricing policy for fuels that is still market-based and now also considers the customer’s alternative costs and the company’s opportunity cost. Overall, the new strategy is more opaque, but for the moment the company announced cuts in wholesale prices of gasoline (-12.6%), diesel (-12.8%) and cooking gas (-21.3%). In JPM’s calculations, considering the cost structure of those items, yesterday’s cuts have an impact on prices at the customer level of -5.3% for gasoline, -7.7% for diesel and -3.8% for cooking gas.
  • JPM had already embedded in their CPI forecasts a 3.6% cut in gasoline prices at the pump. The larger-than-expected cut to gasoline, combined with the impacts of diesel and cooking gas, reduces their short-term CPI forecasts by about 15bp, leading the May estimate to 0.49% (from 0.55%) and the June forecast to 0.25% (from 0.34%). JPMorgan maintain a below-consensus inflation path throughout the year, and yesterday’s changes drive their year-end forecast down from 5.5% to 5.4%.
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  • On Tuesday, Petrobras announced a new pricing policy for fuels that is still market-based and now also considers the customer’s alternative costs and the company’s opportunity cost. Overall, the new strategy is more opaque, but for the moment the company announced cuts in wholesale prices of gasoline (-12.6%), diesel (-12.8%) and cooking gas (-21.3%). In JPM’s calculations, considering the cost structure of those items, yesterday’s cuts have an impact on prices at the customer level of -5.3% for gasoline, -7.7% for diesel and -3.8% for cooking gas.
  • JPM had already embedded in their CPI forecasts a 3.6% cut in gasoline prices at the pump. The larger-than-expected cut to gasoline, combined with the impacts of diesel and cooking gas, reduces their short-term CPI forecasts by about 15bp, leading the May estimate to 0.49% (from 0.55%) and the June forecast to 0.25% (from 0.34%). JPMorgan maintain a below-consensus inflation path throughout the year, and yesterday’s changes drive their year-end forecast down from 5.5% to 5.4%.