UPDATE 2-Brazil's inflation remains within target range in mid-August
(Adds comment from economist, background on election) By Silvio Cascione BRASILIA, Aug 20 (Reuters) - Brazil's inflation remained within the official target range in mid-August as food and clothing prices dropped, sparing President Dilma Rousseff potential embarrassment in a key issue for her re-election campaign. Consumer prices in Brazil rose 6.49 percent in the 12 months to mid-August, a whisker below the 6.5 percent ceiling of the central bank's inflation target, government statistics agency IBGE said on Wednesday. The IPCA-15 inflation index rose 0.14 percent from mid-July, down from 0.17 percent in the prior month and in line with market expectations in a Reuters poll. Prices have risen less than expected in recent months, in part because Brazil's sluggish economy has helped reduce consumer and industrial demand. Food and clothing prices dropped in mid-August as well as hotel prices, offsetting the impact of an increase in electricity costs, IBGE said. Although economists say inflation remains high for an economy so close to a recession, the numbers suggest consumer prices are now less of a problem than at the beginning of the year. Back then, a sharp increase in food costs dented Rousseff's popularity and dominated public debate for months just as the campaign for the Oct. 5 election started to heat up. The presidential race turned upside down last week with the death of presidential candidate Eduardo Campos in a plane crash. According to a poll on Monday, the accident raised the odds of a second-round run-off in late October in which Rousseff would probably face one of her two strongest opponents - Aecio Neves or Marina Silva. Brazil's inflation is expected to end 2014 at 6.25 percent, according to a weekly central bank poll of economists. It will probably remain around that level next year, they say, because of expected increases in government-regulated prices such as gasoline and electricity rates. "This is the most likely risk for inflation this year and in early 2015, regardless of which candidate wins the election," said José Francisco Gonçalves, chief economist at Banco Fator, in a research note. "Inflation remains uncomfortably near the inflation target (ceiling). This month's lower result should not be treated with too much optimism." Brazil's inflation target is 4.5 percent, with a tolerance margin of two percentage points. Below is the result for each price category: August July - Food and beverages -0.32 -0.03 - Housing 1.44 0.48 - Household articles 0.41 0.66 - Apparel -0.18 0.00 - Transport 0.20 -0.85 - Health and personal care 0.55 0.52 - Personal expenses -0.67 1.74 - Education 0.42 -0.07 - Communication -0.84 -0.10 - IPCA-15 0.14 0.17 (Reporting by Silvio Cascione; Editing by W Simon, Chizu Nomiyama and Meredith Mazzilli)
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