UPDATE 1-Brazil's annual inflation slightly up; airfares down
* Airfares drop 21 percent weeks before World Cup * Annual inflation rate remains near target ceiling (Adds background, details on airfares, World Cup) By Silvio Cascione BRASILIA, June 6 (Reuters) - Brazil's annual inflation rate edged up slightly in May, but food and transportation prices showed further signs of relief, supporting the central bank's strategy to hold interest rates for now. Brazil's benchmark IPCA consumer price index rose 6.37 percent in the 12 months through May, accelerating from 6.28 percent in April and near the median expectations in a Reuters poll, statistics agency IBGE said. On a monthly basis, the IPCA index rose 0.46 percent, slowing from 0.67 percent in April. In welcome news for Brazilian authorities and soccer fans, airfares dropped a sharp 21 percent from April, the second monthly decline in a row right on the eve of the World Cup. The drop suggests a sharp increase in airfares earlier this year might have meant carriers had overestimated demand for flights during the tournament. It also signals part of the impact the World Cup could have on the inflation rate might have already happened. Food prices, which spiked earlier this year due to a drought in Southern Brazil, also slowed their advance. They rose 0.58 percent, less than half the pace seen in the previous month. Still, services costs continued to rise sharply as unemployment remains near record lows. For example, personal expenses such as hairdressing and lottery rose 0.80 percent. Brazil's annual inflation rate remains near the 6.5 percent top end of the official target range. Still, the central bank signaled on Thursday that rates could stay on hold through the rest of the year after it had raised them nine straight times until April as it waits to see how the tightening affects prices and slowing economic growth. Stubbornly elevated inflation is a headache for President Dilma Rousseff, who will seek re-election in October. It has also undermined business and consumer confidence, curbing investments and family consumption over the past few months. Brazil's benchmark Selic rate is currently at 11 percent. Water-saving incentives to avoid rationing in Sao Paulo, Brazil's largest city, also helped curb inflation in May. Cia de Saneamento Básico do Estado de São Paulo SA is offering a discount to clients who reduce their monthly water consumption by at least 20 percent through December. Below is the result for each price category: May April - Food and beverages 0.58 1.19 - Housing 0.61 0.87 - Household articles 1.03 0.20 - Apparel 0.84 0.47 - Transport -0.45 0.32 - Health and personal care 0.98 1.01 - Personal expenses 0.80 0.31 - Education 0.13 0.03 - Communication 0.11 0.02 - IPCA 0.46 0.67 (Reporting by Silvio Cascione Editing by W Simon and Lisa Von Ahn)
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