UPDATE 1-Brazil inflation quickens to highest for May since 2008
(Adds background) By Silvio Cascione BRASILIA, June 8 (Reuters) - Consumer prices in Brazil rose in May at their fastest pace for the month since 2008, slightly surpassing market expectations and reinforcing signs that the central bank will have scant room for interest rate cuts in the short term. Prices as measured by the benchmark IPCA index, rose 0.78 percent in May, up from 0.61 percent in April and above market forecasts for a 0.75 percent increase in a Reuters poll, government statistics agency IBGE said on Wednesday. Prices rose 9.32 percent in the 12 months through May, up from an increase of 9.28 percent in the previous month. That annual inflation rate is more than twice as high as the official target of 4.5 percent, a goal last achieved in August 2010. Housing costs rose sharply in May as water, sewage and electricity rates went up. Medicine prices also led inflation higher, as expected, after the government allowed drug costs to rise at their fastest pace in 10 years due to a sharp currency drop. Stubborn inflation has prompted the central bank to keep interest rates at their highest in nearly 10 years despite one of the worst recessions ever in Brazil. Yields on interest rate futures rose on Tuesday <0#2DIJ:> as traders pared bets on rate cuts in coming months, following the first remarks by incoming central bank chief Ilan Goldfajn. Speaking at a Senate hearing, Goldfajn said he would seek to "fully" comply with the bank's objective to bring inflation down to the 4.5 percent level. Most economists have expected interest rate cuts in the second half of the year. The bank will announce later on Wednesday its last policy decision under the leadership of its outgoing president Alexandre Tombini, and analysts in a Reuters poll were unanimous in predicting rates to remain on hold at 14.25 percent in an uneventful meeting. Below is the result for each price category: May April - Food and beverages 0.78 1.09 - Housing 1.79 -0.38 - Household articles 0.63 0.26 - Apparel 0.91 0.40 - Transport -0.58 0.03 - Health and personal care 1.62 2.33 - Personal expenses 1.35 0.23 - Education 0.16 0.20 - Communication 0.01 1.47 - IPCA 0.78 0.61 (Reporting by Silvio Cascione Editing by W Simon)
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