UPDATE 2-Brazil inflation highest in nearly 3 years ahead of election

miércoles 8 de octubre de 2014 11:38 GYT

(Recasts, adds quotes, Moody's warning)

By Silvio Cascione and Walter Brandimarte

BRASILIA/RIO DE JANEIRO Oct 8 (Reuters) - Brazil's annual inflation rate in September shot way above an official target to its highest in nearly three years, the latest economic blow for President Dilma Rousseff who is locked in a tight race for re-election against market-favorite Aecio Neves.

Consumer prices rose a faster-than-expected 6.75 percent in the 12 months through September, the quickest pace since October 2011, government data showed on Wednesday.

The inflation spike raised the prospect of higher interest rates next year, giving fresh ammunition to Neves as bad economic news continues to pile up ahead of an Oct. 26 runoff vote.

Brazil has slipped into recession in the first half of the year and will barely grow in 2014, according to International Monetary Fund forecasts released on Tuesday and later dismissed by Finance Minister Guido Mantega as too pessimistic.

The South American country, a market darling until just a few years ago, also received on Wednesday another debt downgrade warning by Moody's Investors Service.

"This adds fuel to the fire," said Juan Jensen, an economist with consultancy firm Tendencias in Sao Paulo. "The economy as a whole looks very bad with high inflation and weak growth. This will certainly be discussed in the campaign as it helps deconstruct Rousseff's image."

Inflation is a politically sensitive issue in a country traumatized by runaway prices in the past. It contributed to erode Rousseff's popularity ahead of last Sunday's vote, even though it remains much lower than it was 20 years ago.   Continuación...