June 7, 2013 / 12:35 PM / in 5 years

UPDATE 1-Brazil annual May inflation up 6.5 pct, at target ceiling

* IPCA index up 0.37 pct in May, as expected
    * 12-month inflation rises 6.50 pct
    * Traders add bets on steep rate hikes after S&P warning

    By Silvio Cascione
    SAO PAULO, June 7 (Reuters) - Brazil's annual inflation in
May inched higher to hit the ceiling of the government's target
range, keeping pressure on the central bank to raise interest
rates further and leaving little room for the government to cope
with a recent currency drop.
    Brazil's benchmark IPCA consumer price index 
rose 6.50 percent in the 12 months through May, a touch above
6.49 percent in the 12-month through April, statistics agency
IBGE said.
     The annual inflation rate nearly matched analysts' median 
forecast of 6.51 percent.
     The government targets annual inflation at 4.5 percent,
with a tolerance of plus or minus two percentage points. 
     After the release of the inflation data, yields on interest
rate futures jumped as traders added bets on steep
hikes in the benchmark rate, known as Selic, from the current
level of 8.00 percent.   
    On a monthly basis, Brazil's benchmark IPCA consumer price
index rose 0.37 percent in May. The index had been
expected to rise 0.38 percent, according to the median forecast
of 29 economists surveyed.
    Stubbornly high inflation has become Brazil's hottest topic
in recent months, eroding President Dilma Rousseff's record-high
popularity. The central bank raised interest rates from record
lows last month, pledging to keep prices under control. Policy
makers have also been challenged recently by a sharp currency
selloff that threatens to push up prices of imported goods.
    Food prices, one of the main drivers of inflation in the
first months of the year, slowed from the previous month. But
housing and apparel costs accelerated, highlighting the broader
price pressures that have limited consumer spending.
    Average core annual inflation measures also rose to 6.06
percent from 5.94 percent in April, according to Banco Fator,
which estimated 63 percent of goods and services traded had
price increases from the previous month.
     Another factor driving yields on interest rate futures up
were prospects of a credit downgrade by Standard & Poor's, which
revised its outlook for Brazil's sovereign debt to negative from
stable late on Thursday citing slow growth, worse fiscal
performance and "some loss in the credibility of economic
    The central bank accelerated the pace of rate increases in
last week's meeting to 50 basis points, warning that inflation
was on an upward trend and its outlook was "unfavorable."
    Below is the result for each price category:     
                                      May       April
 - Food and beverages                0.31        0.96
 - Housing                           0.75        0.62
 - Household articles                0.46        0.63
 - Apparel                           0.84        0.65
 - Transport                        -0.25       -0.19
 - Health and personal care          0.94        1.28
 - Personal expenses                 0.41        0.61
 - Education                         0.06        0.10
 - Communication                     0.08       -0.32
 - IPCA                              0.37        0.55
0 : 0
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