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Brazil inflation relief fans interest rate cut bets
March 9, 2016 / 1:35 PM / in 2 years

Brazil inflation relief fans interest rate cut bets

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.

A woman walks past signs advertising promotional sales in front of a clothing store in Sao Paulo, Brazil, January 8, 2016. REUTERS/Paulo Whitaker

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:

February January

- 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

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