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UPDATE 2-Brazil's food, fuel costs drive August inflation, but price pressures muted

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BRASILIA, Sept 9 (Reuters) - Brazilian inflation in August hit its highest in four years for that month, figures showed on Wednesday, driven by rising fuel and food costs, although it slowed from the previous month and annual inflation remained well below the central bank’s goal.

While some prices like food are rising in the short term due to specific factors like supply constraints or overseas demand, the deepest recession on record and huge labor market slack are keeping a lid on broader price pressures.

This is likely to keep interest rates at record-low levels well into next year at least, economists say.

“With the economic recovery likely to lose momentum from here on, core inflation should remain subdued,” said William Jackson, chief emerging markets economist at Capital Economics.

“Against this backdrop, Copom (the central bank’s rate-setting committee) won’t be in any rush to raise interest rates. We expect the Selic rate to remain at its current record low of 2.00% into 2022,” he said.

The IPCA consumer price index rose 0.24% in the month, government statistics agency IBGE said, the highest for any August since 2016 and almost exactly in line with the 0.23% that economists in a Reuters poll had expected.

Prices rose 2.44% in the 12 months through August, also in line with the median forecast of 2.42% in the Reuters poll. That is still significantly below the central bank’s official 2020 goal of 4.00%, and below the 2.5% floor of the target range.

According to IBGE, the biggest drivers in August were a 0.82% rise in transport costs, and a 0.78% increase in food and drink prices. Between them, they accounted for 0.31 percentage points of inflation.

Within the transport segment, gasoline prices jumped 3.22%, IBGE said.

The main reason overall inflation was not higher was a 3.47% fall in education prices due to the ongoing closure of many classrooms across the country. This accounted for 0.22 percentage points of deflation in August, IBGE said.

Of the nine sectors covered, six showed inflation and three showed prices falling on the month, IBGE said, adding that the accumulated rate of inflation in the first eight months of the year was 0.7%. (Reporting by Jamie McGeever; Editing by Andrew Heavens, Chizu Nomiyama and Paul Simao)

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