UPDATE 1-Brazil inflation relief fans interest rate cut bets

miércoles 9 de marzo de 2016 09:26 GYT

(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
     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)