Rising crude prices and depreciation of the real have bumped up petrol costs
Driver Jorge Luiz Ribeiro slumps wearily in his truck at São Paulo’s main fruit and vegetable market.
With truckers on strike over rising fuel prices and blocking main roads across Brazil, Mr Ribeiro will be unable to return home today to Rio de Janeiro.
“How am I going to get out of here? They are damaging trucks and lighting fires on the highways. Better to just get something to eat and wait,” he says.
The strike, which began on Monday, is a vivid sign of how recent global turbulence in emerging market currencies is hitting Latin America`s largest economy.
More than 200,000 of the country`s 1m truck drivers joined the strike, threatening food and fuel shortages in Rio and playing havoc with industries ranging from meatpacking to automobiles. “Export contracts could be lost . . . the losses are beyond calculation,” said the Brazilian Animal Protein Association. General Motors complained of problems receiving parts and delivering cars.
A depreciation in Brazil’s currency, the real, to a two-year low against the dollar, together with surging oil prices, is driving up fuel costs. This is combining with political uncertainty over elections in October, which are expected to be the most unpredictable in decades, as well as investor doubts over Brazil’s troubled fiscal situation to severely test the centre-right government of President Michel Temer.
“If this strike grows and it spreads and you can’t control it, you can have a supply meltdown,” said Tony Volpon, economist at UBS. “We are totally dependent on road transport so when truckers start striking, the government does tend to get really concerned.”
Brazil’s diesel prices before taxes and distributor mark-ups have increased almost 30 per cent since March 1 while petrol prices are up about 27.5 per cent, according to state-owned oil company Petrobras.
The increases have been driven by a rally in Brent crude to as high as $80 per barrel last week for the first time since 2014.
The real, meanwhile, fell by about 15 per cent against the dollar to R$3.74 last week before recovering to R$3.64 on Tuesday on the back of central bank intervention.
Analysts say the volatility in Brazil follows doubts over emerging markets as US Treasury yields rise, with neighbouring Argentina suffering a large devaluation. Investors in Brazil are concerned about the country’s elections in October and its large fiscal deficits.
“The swings in the real started with the political uncertainty,” says Zeina Latif, chief economist at XP Investimentos. “Then, came the noise from Argentina.”
The rapidly weakening currency forced the central bank to announce a surprise pause in an easing cycle last week and to increase a dollar swaps programme to support the real.
The surge in fuel prices also comes as Petrobras this year implements a policy of passing on international price rises directly to consumers.
The company is trying to lower one of the world’s biggest corporate debt burdens after it was at the centre of a political corruption scandal under the previous governments of leftist presidents Luiz Inácio Lula da Silva and Dilma Rousseff.
Its accounts were also strained to near breaking point by a previous policy by Ms Rousseff to force Petrobras to artificially control fuel prices to dampen inflation.
Global oil prices and exchange rates “are not controlled by Petrobras”, said Pedro Parente, Petrobras chief executive, who said the market-based pricing policy would not change.
But political analysts said the policy was placing Mr Temer on a tightrope, with election campaigning due to start in just four months. While Mr Temer will not run for re-election, he faces pressure from his party and political allies to solve the fuel price problem.
Indeed, the speaker of the lower house of congress, Rodrigo Maia — another potential presidential candidate — tweeted that the government would “zero” a major tax on fuel to try to reduce prices.
While the centre-right Mr Temer was not expected to directly interfere with Petrobras, “Brazil has a long history of government intervening in fuel pricing policies”, said Eurasia Group analyst Silvio Cascione in a research note. He said the danger was the next president might be tempted into populist policies to control fuel costs.
Meanwhile, expensive diesel is squeezing truckers to the limit, say industry professionals, who fear the strikes will continue. “Clients are offering a lot of money to move the loads but it is just not possible with the strike,” said Federico Vega, founder of CargoX, a start-up that offers Uber-like services for trucks. “The increase in the cost of diesel is basically sending truckers out of business. They have no option.”
At São Paulo’s fruit market, the effects of the strike on food supplies are already being felt after just two days of strikes.
“My sales have already fallen by 40 per cent,” said Ricardo Rosa, who sells mushrooms inter-state. “The only thing moving is going by air.”