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Brazil Inflation Slowest in Nine Months Amid Rate Increases

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Sept. 6 (Bloomberg) -- Brazil’s inflation rate fell to the lowest in nine months, as the central bank signals it will extend the world’s biggest cycle of interest-rate increases.

Prices as measured by the benchmark IPCA index rose 0.24 percent last month, the national statistics agency said, in line with the median forecast of 0.25 percent from 40 analysts surveyed by Bloomberg. The annual rate fell to 6.09 percent, the slowest since December.

Brazil’s government is seeking to contain inflation being pressured by the biggest slide among major currencies in the past three months even as it tries to stimulate investment and growth. As the U.S. Federal Reserve considers scaling back its monetary stimulus, investors are pulling out of emerging markets, putting pressure on currencies and other assets that have rallied since the 2008 global financial crisis.

“Despite a low reading, of 0.24 percent, we’re already observing an important acceleration in core inflation that’s not compatible with hitting the target,” Flavio Serrano, senior economist at Banco Espirito Santo de Investimento SA, said in a phone interview from Sao Paulo.

Regulated Prices

While the government’s effort to keep a lid on regulated prices such as transportation and gasoline is providing some relief, core inflation last month accelerated to 0.42 percent, a sign that the outlook for price stability is worsening, said Serrano. The pass-through effect of the currency’s 7.7 percent slide in the past three months will hit consumers harder starting in October, he said.

The central bank last week raised its benchmark Selic rate to 9 percent, the third straight 50 basis-point increase. It also introduced a $60 billion plan to buoy the real to prevent a weaker currency from stoking inflation that twice this year breached the 6.5 percent upper ceiling of the government’s target range.

The government also lowered tariffs on selected imports and refused to yield to requests from Petroleo Brasileiro SA to raise gas prices to close a gap between what the state-run producer pays for imported oil and what it charges distributors.

Swap rates on the contract due in January 2015, the most traded in Sao Paulo today, fell 20 basis points to 10.27 percent at 11:07 a.m. local time. The real strengthened 0.8 percent to 2.3063 per U.S. dollar.

Food and beverage prices rose 0.01 percent in August after falling 0.33 percent in July, the statistics agency said. Transport prices declined .06 percent.

Economists increased their 12-month inflation forecast for the ninth straight week, to 6.12 percent, according to a central bank survey published on Sept 2. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

Analysts forecast Latin America’s biggest economy will expand 2.3 percent this year and next after climbing 0.9 percent in 2012, its second-worst performance in 13 years.

To contact the reporters on this story: Joshua Goodman in Rio de Janeiro at jgoodman19@bloomberg.net; Marisa Castellani in Sao Paulo at mcastellani7@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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