UPDATE 1-Brazil inflation to ease after latest tax breaks-Mantega

Mon Mar 11, 2013 6:11pm EDT

* Mantega says impact on IPCA index not yet clear

* Says retail and food executives committed to cut prices

BRASILIA, March 11 (Reuters) - Inflation should ease more rapidly in Brazil after the government eliminated federal taxes on food staples and some toiletries, Finance Minister Guido Mantega said on Monday.

After meeting with retail, supermarket and food industry executives, Mantega last week said business leaders have committed to cut the prices of consumer products including meat, sugar and toilet paper.

"This should impact the inflation rate so that it falls rapidly," Mantega told reporters in Brasilia on Monday. The impact on the IPCA consumer price index is not yet clear, he added, noting that analysts have forecast the tax breaks will likely trim between 0.2 percent and 0.6 percent off the inflation rate.

President Dilma Rousseff's government is scrambling to tame the quickening pace of inflation, which could undermine efforts to boost a feeble economic recovery as well as her own re-election bid next year.

The tax breaks could also delay an interest rate hike by the central bank as policymakers grow increasingly worried about inflation edging closer to the official ceiling of 6.5 percent. Economists polled by the central bank expect it to raise the benchmark Selic rate to 8 percent from the current 7.25 percent by year-end.

Rousseff announced the tax breaks in a television address on Friday, reaffirming her government commitment to fight inflation in a country scarred by earlier bouts of hyperinflation.

She estimated that the tax breaks should ease the prices of those staple goods by between 9.25 percent and 12.5 percent. A supermarket association executive said on Monday, however, that the impact would more likely be closer to 3 percent to 6 percent.

FILED UNDER: