July 8 (Bloomberg) -- Brazilian inflation slowed for a second month in June, pushing the annual rate to the lowest in over a year and cementing expectations policy makers will cut interest rates for a fifth time in 2009 to revive growth.

Inflation, as measured by the benchmark IPCA index, decelerated to 0.36 percent last month from 0.47 percent in May, the national statistics agency said today. Economists expected a 0.31 percent rise, according to the median estimate of 31 analysts surveyed by Bloomberg.

Brazil’s central bank said last month that inflation continues to slow, giving policy makers room to further cut the benchmark interest rate to revive economic growth. The bank slashed the so-called Selic to a record low 9.25 percent this year, from 13.75 percent at the end of 2008.

“Inflation is on a benign trajectory aiming to the target,” Andre Perfeito, an economist at Sao Paulo-based Gradual Corretora, said in a telephone interview. “Inflation and economic activity point to the continuity of interest rate cuts by the central bank.”

Brazil fell into recession in the first quarter for the first time since 2003, as gross domestic product had its second straight quarterly contraction, shrinking 0.8 percent. Latin America’s largest economy will shrink 0.5 percent this year before rebounding 3.5 percent in 2010, according to a central bank survey of 100 analysts published this week.

Expectations

A 0.7 percent jump in food prices pushed the monthly rate higher than analysts were expecting, though core inflation and prices for services continued to moderate, Diego Donadio, strategist for BNP Paribas in Sao Paulo, wrote in a note.

Annual inflation, as measured by the IPCA index, slowed to 4.8 percent, down from 5.2 percent the previous month and the lowest since March 2008. Analysts expected the annual rate to fall to 4.75 percent, according to the median estimate in the Bloomberg survey.

Economists covering Brazil expect inflation to slow to 4.42 percent this year, below the 4.5 percent midpoint of the government’s target range, according to the central bank survey.

The same survey shows they also see the bank cutting the Selic one last time this year to 8.75 percent in July.

The real gained 0.1 percent to 1.9951 per dollar at 9:40 a.m. New York time from 1.9974 yesterday.

‘Parsimonious Manner’

Still, as the recession shows signs of hitting bottom, policy makers, in the minutes to their June 9-10 meeting, said “additional monetary easing must be implemented in a more parsimonious manner.”

Industrial output posted its fifth straight monthly gain in May, beating analyst expectations in rising 1.3 percent from April. Labor Minister Carlos Lupi said last week that employers will add more than 131,000 jobs in June, accelerating the pace of hiring from May.

“It becomes more evident day after day that even the most- seriously hit sector is coming out of the woods,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento, wrote in a note yesterday after manufacturers said they increased their use of installed capacity for the fourth straight month, to 79.8 percent in May. This “buttress the perception that the worst is over.”

Latin America’s biggest economy “demonstrated resilience to shocks” during the worst economic crisis since World War II, prompting Moody’s Investors Service to put Brazil’s rating under revision for an upgrade this week.

To contact the reporter on this story: Joshua Goodman in Rio de Janeiro jgoodman19@bloomberg.net; Iuri Dantas in Brasilia at idantas@bloomberg.net

Last Updated: July 8, 2009 09:57 EDT