BRASILIA (Reuters) - Brazil’s annual inflation rate eased off a 12-year high in February, official data showed on Wednesday, reinforcing the case for interest rate cuts to stimulate a recession-bound economy.
Consumer prices as measured by the benchmark IPCA index rose 10.36 percent in the 12 months through February, slowing from a 12-year high of 10.71 percent in January and below the lowest forecast in a Reuters poll, at 10.40 percent.
Yields on Brazilian interest rate futures <0#2DIJ:> fell as traders strengthened their bets on central bank interest rate cuts.
Inflation remains well above the official 4.5-percent target but is expected to slow down to around 7.5 percent by year end as the recession drags on, according to a central bank survey of economists.
That could encourage the central bank to cut interest rates off nine-year highs and help lift the economy out of its worst downturn in decades, economists say.
Most of the inflation slowdown in February stemmed from a smaller increase in food prices and a fall in electricity rates. In January, food prices shot up after heavy rain curbed harvests. The power sector in February benefited from replenishment of hydroelectric dam reservoirs.
On a monthly basis, consumer prices rose 0.90 percent in February from January, down from 1.27 percent in the previous month BRCPI=ECI. Tomatoes, vulnerable to irregular rainfall, fell more than 15 percent in the month.
Education costs rose sharply though, pushed up by a seasonal increase in school fees that mostly reflected the double-digit inflation rate of last year. The high level of indexation of wages and contracts in Brazil prevents inflation from slowing more rapidly in a recession, economists say.
Brazil’s economy shrank 3.8 percent in 2015 and is expected to fall another 3.5 percent this year, in the weakest performance of a major global economy.
Taken together, the back-to-back annual recessions are expected to push Brazil into its most severe downturn in more than a century.
Below is the result for each price category:
- Food and beverages 1.06 2.28
- Housing -0.15 0.81
- Household articles 1.01 0.45
- Apparel 0.24 -0.24
- Transport 0.62 1.77
- Health and personal care 0.94 0.81
- Personal expenses 0.77 1.19
- Education 5.90 0.31
- Communication 0.66 0.22
- IPCA 0.90 1.27
Reporting by Silvio Cascione Editing by W Simon