Brazil Vice President Sees No Fuel Price Boost Before Vote

Apr 08, 2014 10:08 am ET

(Updates with Temer’s comments in two last paragraphs)

April 8 (Bloomberg) -- Brazilian Vice President Michel Temer said he sees no room for a fuel price increase before elections in October and that inflation surpassing 6.5 percent would be a “disaster.”

“I don’t think so. I can’t say with complete certainty,” Temer, 73, said in an interview yesterday at Bloomberg’s headquarters in New York, in response to whether Petroleo Brasileiro SA would raise fuel prices before the election. “I don’t have information about it, but I’m not seeing the possibility.”

Petrobras rose 6.6 percent to 16.46 reais yesterday, the biggest jump in more than a week, after a poll showed reduced support for President Dilma Rousseff’s re-election bid. The government controls Petrobras’s board with a majority of voting shares, and investors were encouraged by the possibility of a change in administration, said Paulo Brito, an investment manager at the brokerage firm HPN Invest in Recife, Brazil.

The company’s refining and distribution unit has posted $38 billion in losses since 2011 when it started subsidizing imported fuel. Petrobras most recently raised gasoline and diesel prices 4 percent and 8 percent, respectively, late last year.

‘The Consequences’

“Rousseff’s policies have not been business friendly and Petrobras, in particular, has suffered the consequences,” Gianna Bern, president of Chicago-based risk-management adviser Brookshire Advisory & Research, said by telephone. “These policies have resulted in dysfunctional fuel price economics that are not likely to change anytime soon.”

The government’s approval rating fell to 36 percent last week from 41 percent in February as 72 percent of respondents said a change in policies is needed amid the threat of faster inflation and weaker purchasing power, according to a survey conducted by public opinion research company Datafolha. That is the lowest approval since August.

Rousseff’s support also fell to 38 percent from 44 percent in February in a simulated election that pitched her against possible opposition candidates Aecio Neves and Eduardo Campos, according to the survey published over the weekend. She still had more than the level of backing a candidate would need to win the first round, as her rivals were little changed in the polling. The April 2-3 survey of 2,637 people has a margin of error of plus or minus 2 percentage points.

‘It’s inevitable’

“It’s inevitable to link inflation and the president’s popularity,” said Temer, who has a doctorate in law from the Pontifical Catholic University in Sao Paulo. “If inflation takes off, there’s no doubt it will have negative repercussions for the government, and even in the election.”

Economists in an April 4 survey by the central bank published yesterday increased their 2014 inflation forecast to 6.35 percent. Annual inflation accelerated to 6.08 percent in March from 5.68 percent in February, according to the median estimate of analysts polled by Bloomberg. The national statistics institute is scheduled to publish the price report April 9.

The analysts surveyed by the central bank also estimate economic growth will slow to 1.63 percent this year from 2.3 percent in 2013 as Brazil’s currency depreciates and the central bank board continues boosting borrowing costs. Policy makers target 4.5 percent inflation, plus or minus 2 percentage points.

“The government will try to get to the mid-point of the target, but it will not let it breach the ceiling,” Temer said. “The disaster would be for it to breach the top.”

Temer, who was a key note speaker at an international finance seminar in New York yesterday, said his visit to the U.S. was part of an effort to show investors and business leaders a “positive” view of the Brazilian economy.

He said while growth has slowed, Latin America’s biggest economy still outperformed other markets. Near record low unemployment, a rising middle class and a increase in domestic demand show the strength of the economy, he said.

--With assistance from Peter Millard in Rio de Janeiro.