UPDATE 2-Brazilian inflation slows but not by as much as expected

(Adds more details on inflation, analyst’s comment)

SAO PAULO, March 24 (Reuters) - Brazil’s consumer prices rose slightly more than expected in the 12 months to mid-March, statistics agency IBGE said on Friday, further dashing expectations that the country’s central bank might ease monetary policy soon.

The IPCA-15 consumer price index rose 5.36% in the year to mid-March, above the 5.30% rise expected by analysts polled by Reuters but still below the 5.63% reported in the previous 12-month period.

On a month-on-month basis, inflation came in at 0.69%, also slightly higher than the expected 0.65% rise.

The data bolstered an already hawkish stance by the country’s central bank, which on Wednesday kept interest rates at a six-year high of 13.75% and noted rising inflation expectations.

Brazilian President Luiz Inacio Lula da Silva criticized the decision, saying that the central bank must “pay the price” for high interest rates.

Of the nine activities surveyed by IBGE, only household items reported a drop in prices in the month through mid-March.

Transportation prices climbed 1.5%, driven by a 5.76% rise in the price of gasoline, following a government decision to partially resume federal taxes on the fuel as well as ethanol last month.

Food and beverage inflation, on the other hand, slowed to 0.2%, down from 0.39% in the previous monthly period.

“Overall, inflation continues to head south, despite the resumption of key taxes, thanks to the effect of a relatively stable Brazilian real, falling raw material prices, the hit from tight monetary policy and struggling domestic demand,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.

Abadia said these downside forces are fully in play, which together with falling energy prices, shipping costs, and favorable base effects will continue to keep inflation pressures under control.

“We still believe that headline inflation will fall to about 3.5% in June, before gradually increasing to 5.8% by year-end as base effects turn less benign,” Abadia said.

That forecast supports the outlook for rate cuts during the second half of 2023, assuming inflation expectations are brought back under control and Lula eases his fight against the central bank and delivers “an orthodox fiscal framework,” Abadia added. (Reporting by Peter Frontini; Editing by Steven Grattan and Paul Simao)