(Recasts, updates with analyst comments, specifies tax, separate impact for diesel)
BRASILIA/RIO DE JANEIRO, April 30 Brazil will raise refinery-gate gasoline prices 10 percent and diesel prices by 15 percent on May 2 in the first hike in 2-1/2 years, but a tax cut should reduce a subsequent rise in inflation, the government said on Wednesday.
The much-expected decision allowing state-run oil company Petrobras (PETR4.SA)(PBR.N) to raise the prices of two key fuels came after two days of meetings between Petrobras executives, President Luiz Inacio Lula da Silva and his ministers, who were concerned about stoking inflation.
Finance Minister Guido Mantega said shortly after Petrobras announced the hike that the government would reduce the so-called CIDE economic domain tax so motorists at the pump feel no impact from the refinery-gate gasoline jump.
He said CIDE, which will fall to 18 centavos (11 U.S. cents) from 28 centavos a liter of gasoline and to 3 centavos from 7 centavos for diesel, was created as an anti-cyclical tax intended to mitigate the impact of price hikes on consumers.
Diesel prices would still increase over 8 percent for consumers and a huge fleet of trucks and buses, Mantega said.
Inflation has been rising, fueled by growing demand during an economic boom, as well as high food prices.
World oil prices have nearly doubled since the last fuel price hike in Latin America's largest country where Petrobras accounts for nearly all crude production and refining.
Analysts say the price lag for gasoline and diesel is between 20 and 30 percent, which has hit Petrobras cash flow at a time it needs to pump billions of dollars in recent important oil discoveries to boost production. Still, the rise, especially for diesel, exceeded some expectations.
"We have various positive aspects that will help Petrobras stock -- prices rising a bit more than expected although maybe not enough yet, the government acknowledging that it is a needed hike and reducing the tax," said an analyst with a big foreign bank who wished to remain anonymous.
"If they (the government) want to stick to a policy of benefiting consumers, fine, but they are not going to do it at the cost of Petrobras' revenues. It's a very good sign and a strong commitment," the analyst added.
Gilberto Pereira de Souza of BES bank was less upbeat, saying that, in the case of diesel, "with a 30 percent lag, a 15 percent hike doesn't resolve much, but it's better than nothing."
Petrobras stock closed 3.18 percent higher at 42.2 reais before the announcement, underperforming a 6.3 percent jump in the broader market fueled by Brazil's winning of a much coveted investment-grade credit rating from Standard & Poor's.
Analysts say it is likely to rise more after Thursday's Labor Day holiday to price in the fuel hike.
Petrobras, a publicly traded company, is formally free to set fuel prices, but the government has de facto control over the prices of gasoline, diesel and cooking gas. The prices of other oil products like aviation kerosene or naphtha, are adjusted regularly in line with market levels.
The company, which made Brazil self-sufficient in oil for the first time in 2006, has already complained that its cash flow is getting too low to finance its oil exploration program, especially in the newly-found reserves deep under the ocean floor in the so-called subsalt cluster.
Petrobras' five-year investment plan envisages an ambitious capital expenditure of $122 billion. (Reporting by Andrei Khalip, Denise Luna and Ana Nicolaci da Costa; Editing by David Gregorio)