Working with artificially low prices could further stimulate consumption in a time of scarcity, leading to more supply crises
It’s impressive how in Brazil we don’t learn from the past. A significant price increase is enough and the government is already coming with measures to mitigate the increasegoing against the law of supply and demand. Every time there is interference with market laws, there is always a burden to be paid by the population.
This time the interference came with the rise in the price of diesel, as a result of the conflict in the Middle East. To mitigate the rise, the government subsidized fuel imports by R$0.32 per literzeroed PIS/Cofins on fuel, and Petrobras did not pass on the entire increase in the international market. Additionally, the government will subsidize R$1.20 for diesel purchases by distributors, dividing the amount equally between the Union and the States (R$0.60 for each).
There are two problems with these measures. The first is that even if the price is reduced, the supply of diesel will not increase. On the contrary, the product will remain scarce. To make matters worse, working with artificially low prices can further stimulate consumption in a time of scarcityleading to more supply crises.
The second problem is that these measures have fiscal impacts. It is clear that the higher price is much more perceived by the population than the dilution of the impact on public accounts.. The population may not even notice the effect, but will still bear it via public accounts with higher interest rates.
At these times, the liberal motto that “the best remedy for high prices is high prices” applies. Many people want a miraculous and painless solution, but unfortunately this does not exist in economics. The high price at a time of scarcity has a double function: it slows down demand so as not to worsen the fuel shortage, but it also signals to the market the possibility of attracting more investments in the medium term by increasing revenue.
Unfortunately These market laws are far from a government who only thinks about re-election.
*This text does not necessarily reflect the opinion of Jovem Pan.
