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SAO PAULO, June 21 (Reuters) - Poor crop weather across Brazil will keep food prices high, adding to overall inflation despite a sharp slowdown in mid-June, economists predicted on Tuesday.
They said rising prices, in turn, will pressure the central bank's new board to delay monetary easing until later this year, making it harder to fight a lingering recession.
The annual inflation rate slowed more than expected in mid-June to 8.98 percent, down from 9.62 percent in mid-May, statistics agency IBGE said, citing a sharp slowdown in food inflation as the main reason.
But economists said prices for staples such as beans are probably headed higher, as are prices for grains used as livestock feed. The reason: excess or little rain in grain-producing states coupled with cold waves and hot spells at the start of the crop season.
Brazil's crop supply agency Conab has lowered its output forecast for corn and soy, which are in heavy demand to feed livestock. In addition, too much rain in the Parana and Minas Gerais states pushed up the price of the staple carioca bean by 7.61 percent in May from the previous month and by 41.62 percent in 12 months.
"Agricultural supply shocks should keep prices under pressure. Everything is related to the negative weather," said Elson Teles, an economist with Brazil's largest private-sector bank Itau Unibanco.
The lender has revised up its 2016 inflation forecast to 7.2 percent from 6.9 percent previously due to higher grain prices.
The central bank has also cited "temporary" food price shocks as one reason for inflation to remain high even as a two-year recession slashes jobs and wages.
New Central Bank Governor Ilan Goldfajn has promised to bring inflation down to the 4.5 percent center of the official target range.
To do so, many traders believe Goldfajn will need to keep the benchmark Selic rate on hold at 14.25 percent until October, according to the yields of interest rate futures.
"Food price pressures will have an impact on inflation expectations and that could prompt the bank to delay the start of its rate-cutting cycle," said Flavio Serrano, senior economist with investment bank Haitong.
Carioca bean prices, which rose 16.38 percent in the month through mid-June, kept inflation from easing further in that period, according to the statistics agency.
"Inflation will decelerate at a slower pace than initially expected," said Luciano Rostagno, chief strategist with Mizuho bank in Sao Paulo. (Reporting by Alonso Soto; Editing by David Gregorio)