Brazilian consumer prices likely up in July on tax hike, power costs

FILE PHOTO: Consumers shop at a supermarket in Sao Paulo, Brazil January 11, 2017. REUTERS/Paulo Whitaker/File Photo

SAO PAULO (Reuters) - Brazilian consumer prices likely rose in July, snapping back after a period of deflation in June thanks to a fuel tax hike and higher power prices, a Reuters poll of economists showed on Tuesday.

Still, annual inflation probably slipped to its lowest rate in 18 years, keeping the central bank on track to continue cutting interest rates aggressively.

Consumer prices are expected to have risen 0.19 percent in July from the month before, compared to a 0.23 percent drop in June, according to the median of 25 estimates in the poll. They ranged from a fall of 0.20 percent to an increase of 0.65 percent. BRCPI=ECI

Inflationary pressure is expected to remain through August due to the impact of a temporary hike in energy rates, which was pushed through by regulators to make up for a rainfall-related drag on hydropower output. The effect of a mid-July increase in the so-called PIS/Cofins social contribution tax on fuels should also linger in the short term.

But economists widely expect annual inflation to remain subdued due to a weaker-than-expected economic recovery. The central bank has cut interest rates by 500 basis points since October 2016.

Annual inflation is seen slowing to 2.66 percent in July, far below the bottom end of the government's target range of 4.5 percent plus or minus 1.5 percentage points, the survey showed. BRCPIY=ECI

Statistics agency IBGE will publish the July inflation rate on Wednesday at 9 a.m. local time (1200 GMT).

The pickup in inflation “is a transitory effect and will likely not factor in the central bank’s rate decision,” said Leonardo Costa, economist at Rosenberg Associados consultancy. Rosenberg Associados is the third most accurate inflation forecaster in the Reuters poll.

Interest rate future contracts indicate traders expect the central bank to reduce the benchmark Selic rate once again at its September meeting, though bets are split on the magnitude of the cut. BCBWATCH

Reporting by Bruno Federowski; Editing by Paul Simao