UPDATE 2-Brazil's stagflation worsens as prices jump in mid-March
(Recasts, adds background on tax hikes, interest rates) By Silvio Cascione BRASILIA, March 20 (Reuters) - Brazil's inflation hit a new 10-year high in mid-March even as the economy slipped closer to recession, complicating President Dilma Rousseff's efforts to instill confidence and steer the country away from a potential crisis. Consumer prices as measured by the IPCA-15 index rose 7.90 percent in the 12 months to mid-March, up from a 7.36 percent increase in mid-February and far above the official 4.5 percent target, statistics agency IBGE said on Friday. The result, which came in line with market expectations, shows Brazil's stagflation - when lofty inflation persists amid rising unemployment and stagnant demand - is worsening as policymakers scale back subsidies and tax benefits to halt a sharp increase in public debt. For years, Rousseff has been criticized by investors for trying to rein in inflation by delaying increases in prices and other costs under the government's control despite falling tax revenues. As pent-up price pressures mounted, Rousseff changed tack late last year after narrowly winning re-election. Electricity rates jumped 10.91 percent from mid-February after the government finally opted to pass on the higher costs of running emergency thermal generators. Fuel prices, pushed up by a recent tax hike, gained 6.25 percent. Economists expect 12-month inflation to remain close to 8 percent throughout 2015, complicating the central bank's efforts to control expectations. The bank is expected to keep raising interest rates in coming months from the current 12.75 percent, a six-year high. While inflation climbs, Brazil's economy is expected to shrink 0.8 percent in 2015, the steepest drop in 25 years. Consumer and business confidence have plunged and Rousseff's popularity has hit a new low as job losses have increased, according to recent government and private surveys. On a monthly comparison, consumer prices gained 1.24 percent from mid-February, slowing from 1.33 percent in the previous month. Food prices rose 1.22 percent, up from 0.85 percent in mid-February, pushed up by higher costs of fresh vegetables such as onions, carrots and tomatoes after one of the rainiest months in years in some areas of Southern Brazil. Below is the result for each price category: March February - Food and beverages 1.22 0.85 - Housing 2.78 2.17 - Household articles 0.44 0.62 - Apparel -0.11 -0.89 - Transport 1.91 1.98 - Health and personal care 0.96 0.39 - Personal expenses 0.41 1.22 - Education 0.74 5.98 - Communication -0.78 0.28 - IPCA-15 1.24 1.33 (Editing by Chizu Nomiyama and Bernadette Baum)
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