UPDATE 1-Brazil inflation relief fans interest rate cut bets
(Adds market reaction, inflation drivers, background) By Silvio Cascione BRASILIA, March 9 (Reuters) - Brazil's annual inflation rate eased off a 12-year high in February, official data showed on Wednesday, reinforcing the case for interest rate cuts to stimulate a recession-bound economy. Consumer prices as measured by the benchmark IPCA index rose 10.36 percent in the 12 months through February, slowing from a 12-year high of 10.71 percent in January and below the lowest forecast in a Reuters poll, at 10.40 percent. Yields on Brazilian interest rate futures <0#2DIJ:> fell as traders strengthened their bets on central bank interest rate cuts. Inflation remains well above the official 4.5-percent target but is expected to slow down to around 7.5 percent by year end as the recession drags on, according to a central bank survey of economists. That could encourage the central bank to cut interest rates off nine-year highs and help lift the economy out of its worst downturn in decades, economists say. Most of the inflation slowdown in February stemmed from a smaller increase in food prices and a fall in electricity rates. In January, food prices shot up after heavy rain curbed harvests. The power sector in February benefited from replenishment of hydroelectric dam reservoirs. On a monthly basis, consumer prices rose 0.90 percent in February from January, down from 1.27 percent in the previous month. Tomatoes, vulnerable to irregular rainfall, fell more than 15 percent in the month. Education costs rose sharply though, pushed up by a seasonal increase in school fees that mostly reflected the double-digit inflation rate of last year. The high level of indexation of wages and contracts in Brazil prevents inflation from slowing more rapidly in a recession, economists say. Brazil's economy shrank 3.8 percent in 2015 and is expected to fall another 3.5 percent this year, in the weakest performance of a major global economy. Taken together, the back-to-back annual recessions are expected to push Brazil into its most severe downturn in more than a century. Below is the result for each price category: February January - Food and beverages 1.06 2.28 - Housing -0.15 0.81 - Household articles 1.01 0.45 - Apparel 0.24 -0.24 - Transport 0.62 1.77 - Health and personal care 0.94 0.81 - Personal expenses 0.77 1.19 - Education 5.90 0.31 - Communication 0.66 0.22 - IPCA 0.90 1.27 (Reporting by Silvio Cascione Editing by W Simon)
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