January 11, 2017 / 11:49 AM / a year ago

UPDATE 2-Brazil meets 2016 inflation target, clearing way for rate cuts

(Adds comments, services inflation)
    By Silvio Cascione
    BRASILIA, Jan 11 (Reuters) - Brazil's inflation finished
2016 within the official target range, government data showed on
Wednesday, reinforcing calls for an aggressive cycle of interest
rate cuts by the central bank as the economy remains mired in
    Consumer prices rose 6.29 percent in 2016, slowing from an
increase of 10.67 percent in 2015 and below the 6.5 percent
ceiling of the official goal.
    Prices rose 0.30 percent in December from November, slightly
below market forecasts for an increase of 0.33 percent. 
    It was the fourth month in a row in which prices rose more
slowly than economists in a Reuters poll had expected, and the
lowest inflation rate for December since 2008.
    During most of 2016, the central bank had been widely
expected to miss its target for the second year in a row. The
surprisingly fast slowdown in prices prompted the central bank
to start cutting interest rates from 14.25 percent beginning in
October to try to avoid a third year of recession.
    The next central bank policy meeting is later on Wednesday.
Most economists expect a reduction of 50 basis points in the
benchmark Selic rate, to 13.25 percent. 
    "This reinforces bets that the central bank will give today
at least a stronger signal that it will cut rates faster going
forward," said Marcio Milan, an economist with São Paulo-based
consultancy Tendências.
    Inflation is expected to end 2017 at 4.8 percent, according
to a weekly central bank poll of economists. However, it should
fall to as low as 4 percent by August, below the 4.5 percent
target midpoint, said Leonardo França Costa, an economist with
São Paulo-based research firm MCM. 
    Chronically high inflation has dented consumer confidence
and hindered investment plans by companies in Brazil for years,
as interest rates remain among the highest for major world
economies. Part of the reason for the inflation slowdown is
massive unemployment, which has helped curb prices of services.
    A measure of services inflation that excludes volatile items
rose 6.27 percent in 2016, down from 6.54 percent in the 12
months through November.
    Below is the result for each price category: 
                              December     November  
- Food and beverages          0.08        -0.20     
- Housing                    -0.59         0.30      
- Household articles         -0.31        -0.16     
- Apparel                     0.32         0.20     
- Transport                   1.11         0.28     
- Health and personal care    0.49         0.57     
- Personal expenses           1.01         0.47     
- Education                   0.07         0.06     
- Communication               0.02         0.27     
- IPCA                        0.30         0.18     

 (Additional reporting by Camila Moreira; Editing by Lisa Von
Ahn and Chizu Nomiyama)
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