August 8, 2016 / 5:31 PM / 2 years ago

Brazil inflation seen up in July, but relief ahead

BRASILIA, Aug 8 (Reuters) - Brazil’s inflation rate likely inched higher in July compared to the previous month, but eased from mid-July as a surge in food prices started to ebb, a Reuters poll showed.

Consumer prices as measured by the benchmark IPCA index probably rose 0.45 percent in July, up from 0.35 percent in June, according to the median of 17 forecasts ranging from 0.38 to 0.51 percent.

The result would be lower than the 0.54 percent increase recorded in the month to mid-July after a sharp rise in food prices, mainly for rice and beans, which are staple food items.

The annual inflation rate probably fell to 8.66 percent from 8.80 percent in June, but still remains well above the 4.5 percent center of the official target range.

“That monthly relief stems from less pressure coming from food prices, reinforcing our expectation for a slowdown in inflation in the second half of the year,” economists with Sao Paulo-based bank Bradesco said in a research note.

Higher-than-expected inflation results this year have forced the central bank to keep its benchmark Selic rate near 10-year highs even as the country struggles with a crippling recession now in its second year.

High interest rates and growing expectation for the approval of austerity measures under interim President Michel Temer have recently dragged down inflation expectations for this year and next. Less government spending and more expensive credit lead to lower consumption and inflation expectations.

Temer, who replaced President Dilma Rousseff while she faces an impeachment trial over accusations of doctoring government accounts, has vowed to limit public spending and overhaul the country’s generous pension system.

Economists forecast inflation will ease to 7.20 percent this year, according to a weekly central bank poll published Monday.

The survey forecasts an even sharper drop for next year, with inflation at 5.14 percent. In April, the inflation forecasts for 2017 stood at 6 percent. (Reporting by Alonso Soto; Editing by James Dalgleish)

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