October 6, 2017 / 1:27 PM / 2 years ago

UPDATE 1-Brazil inflation slows less than expected in September

 (Adds details, context, analyst comment)
    By Bruno Federowski
    SAO PAULO, Oct 6 (Reuters) - Brazil's inflation rate slowed
less than expected in September, suggesting the pace of price
hikes may have bottomed out near 18-year lows.
    Consumer prices as measured by the IPCA index rose 2.54
percent from the year before, down from 2.56 percent through
mid-September, government statistics agency IBGE said on Friday.
    The reading came in above the 2.47 percent increase
predicted by economists surveyed by Reuters, only the second in
the last nine bi-weekly releases to do so.
    It surprised even the most accurate forecaster, the
Rosenberg Associados consultancy, which had forecast a 2.45
percent rate.
    Higher fuel prices accounted for most of the increase, with
gasoline rates rising an average 2.22 percent from August.
State-controlled oil company Petróleo Brasileiro SA           
repeatedly hiked prices throughout the month after recent
hurricanes in the United States shut down oil terminals across
the northern Caribbean.
    Nevertheless, the annual rate remained far below the
bottom-end of the central bank's target range, of 4.5 percent
plus or minus 1.5 percentage point, supporting bets that it may
undershoot the goal for the fist time ever this year.
    An unexpectedly strong agricultural harvest has driven food
prices sharply lower, helping to pull down inflation from double
digits as Latin America's largest economy exited its deepest
recession in a century.
    That has allowed the central bank to cut interest rates by
600 basis points since October to 8.25 percent. The bank is
expected to reduce the benchmark Selic rate further this month,
albeit at a slower pace.           
    Some economists expect interest rates to fall as low as 6.5
percent by the end of the year, an all-time low.
    Still, the September inflation figures showed a slower
decline in food prices than in the previous month, a potential
sign of a change in trend.
    "While this is the most volatile component of the IPCA
basket, most of the evidence suggests it is now close to
bottoming out," Capital Economics economist Neil Shearing wrote
in a report.
    "Our view is that the big falls in inflation are now behind
us and the annual IPCA rate will hover around 2.5-2.6 percent
y/y over the rest of this year."
    The IPCA index rose 0.16 percent from the month before, up
from a 0.11 percent increase in mid-September and above market
estimates of a 0.09 percent rise.            
    Economists expect an annual inflation rate of 2.97 percent
in 2017, according to a central bank weekly survey.
    Below is the result for each price category: 
                              September    August    
- Food and beverages         -0.41        -1.07     
- Housing                    -0.12         0.57      
- Household articles          0.13         0.20     
- Apparel                     0.28         0.29     
- Transport                   0.79         1.53     
- Health and personal care    0.32         0.41     
- Personal expenses           0.56         0.29     
- Education                   0.04         0.24     
- Communication               0.50        -0.56     
- IPCA                        0.16         0.19     

 (Reporting by Bruno Federowski; Editing by Bernadette Baum)
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