Inflation in Brazil rose to 4.14% year-on-year in March, driven largely by surging fuel prices amid a global energy disruption linked to the ongoing conflict in the Middle East, official data showed on Tuesday. The Brazilian Institute of Geography and Statistics (IBGE) reported that gasoline prices increased by 4.59% in March, pushing up transportation costs, while diesel prices, critical for freight transport, surged 13.9%. Brazil imports around 30% of its diesel consumption, amplifying the impact of international supply constraints.

Food prices also rose by 1.56% during the month, influenced in part by higher transportation expenses. IBGE manager Fernando Goncalves highlighted the influence of international uncertainties on certain sectors, particularly fuel, noting that these factors are already reflected in domestic inflation figures.

The surge follows disruptions in oil and gas shipments caused by Iran’s blockade of the Strait of Hormuz, a crucial maritime passage that handles about 20% of global oil and gas deliveries. This action occurred after the United States and Israel launched airstrikes against Iran in February, exacerbating energy supply tensions worldwide.

Analysts at Capital Economics attributed Brazil’s inflation increase "almost entirely" to the international energy shock. In response to rising price pressures, Brazil’s central bank reduced its benchmark interest rate in March for the first time in nearly two years, lowering it from 15% to 14.75%. The consultancy suggested that if a ceasefire between the U.S. and Iran leads to a decline in energy prices, the central bank may continue to ease monetary policy.

Domestically, President Luiz Inacio Lula da Silva approved a suite of measures aimed at mitigating the surge in fuel costs. The package includes subsidies for diesel fuel and targeted assistance for the aviation sector, which is expected to face rising fares as a result of soaring jet fuel prices. According to Brazil’s National Petroleum Agency, diesel prices at fuel stations have climbed nearly 24% since the conflict began in late February.

Lula, who is seeking a fourth term in the October presidential election, faces significant electoral challenges. Polls indicate strong competition from Senator Flavio Bolsonaro, son of former President Jair Bolsonaro, who is currently incarcerated over an alleged coup plot. The economic pressures from inflation and energy costs are likely to be a critical factor in the campaign landscape.