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UPDATE 2-Petrobras to raise fuel prices, threatening inflation
January 29, 2013 / 10:18 PM / 5 years ago

UPDATE 2-Petrobras to raise fuel prices, threatening inflation

* Wholesale gas price up 6.6 pct, diesel up 5.4 pct

* Follows steady pump prices since 2006

* Gov’t has less room to insulate consumer prices

SAO PAULO, Jan 29 (Reuters) - Brazil’s state-run oil company Petrobras will raise wholesale prices for gasoline and diesel on Wednesday, bringing relief to its money-losing refining and supply unit but threatening to accelerate inflation amid weak economic growth.

Petrobras said in a market filing on Tuesday that it would increase prices for gasoline and diesel by 6.6 percent and 5.4 percent, respectively, starting on Jan. 30.

Recent wholesale price increases have been offset by tax cuts to insulate consumers, but the government is running out of maneuvering room and may have to allow higher pump prices for the first time in about seven years.

That could stoke inflation which was already running at a one-year high in the 12 months through mid-January, raising questions about how long the central bank can hold interest rates at record lows to spur a sluggish recovery.

At the government’s urging, Petrobras has held pump prices largely steady since 2006 to control inflation. Global crude prices have roughly doubled over that period, leading the company to sell imported fuel at a loss.

The lost cash flow has dragged on the Petrobras’ $237 billion investment plan, the world’s largest corporate investment program, as the company tries to reverse slipping output and tap vast new offshore reserves.

As Brazil’s economy has grown rapidly in recent years, domestic demand for gasoline and diesel has outstripped Petrobras’ refining capacity, forcing it to import significant volumes of refined fuel. Gasoline imports by Petrobras surged 56 percent in December.

Petrobras shares jumped nearly 4 percent on Dec. 19 when the government said it would allow the company to raise fuel prices in 2013. The stock closed 1.3 percent lower in Sao Paulo on Tuesday at 19.11 reais, a nearly seven-week low.

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