UPDATE 1-Brazil inflation rises less than expected in mid-January

Thu Jan 23, 2014 6:33am EST

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By Silvio Cascione
    BRASILIA, Jan 23 (Reuters) - Consumer prices in Brazil rose
less than expected in the month to mid-January, raising the odds
in the market that the central bank will opt for a smaller hike
in its benchmark interest rate next month.
     Brazil's IPCA-15 consumer price index rose
5.63 percent in the 12 months through Jan. 15, easing from 5.85
percent one month before and below all forecasts in a Reuters
poll, government statistics agency IBGE said on Thursday.
    On a monthly basis, the IPCA-15 index rose 0.67
percent, down from 0.75 in the previous month. 
    Yields on interest rate futures dropped after the results as
 traders pared bets on aggressive interest rate hikes by the
central bank over the next months.
    To dampen inflation, the central bank has raised interest
rates by 3.25 percentage points to 10.5 percent since April. The
bank targets inflation at 4.5 percent, with a tolerance margin
of plus or minus 2 percentage points.
    Analysts said a surprise jump in consumer prices last month
was the main reason why the bank's monetary policy committee
raised interest rates by 50 basis points last week, and not by
25 bps as most economists expected.
    The central bank's string of interest rate rises have
complicated efforts by President Dilma Rousseff to jumpstart
near-stagnant economic growth in the final year of her
presidential term.
    Rousseff is widely expected to seek a second term in
elections scheduled for October.
    In the minutes of last week's policy meeting published
Thursday, the central bank did not commit to throttling back the
pace of its monetary tightening at its next policy meeting as
inflation remains naggingly high and pressured by rising wages.
 
    The average of the three main core inflation measures
dropped to 0.55 percent in the month to mid-January from 0.63
percent in the month to mid-December, according to Banco Fator
estimates. The so-called diffusion index, which measures the
proportion of goods and services that had price increases, rose
to 75.1 from 70.1 percent.
     Below is the result for each price category:    

                               January     December
 - Food and beverages          0.96        0.59
 - Housing                     0.58        0.59
 - Household articles          0.49        0.57
 - Apparel                     0.59        0.78
 - Transport                   0.43        1.17
 - Health and personal care    0.41        0.46
 - Personal expenses           1.31        1.18
 - Education                   0.50        0.00
 - Communication               -0.02       0.92
                                           
 - IPCA-15                     0.67        0.75
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