• *Inflation eases after sovereign debt downgraded to junk
  • *Brazil heads for the highest annual inflation since 2003

Brazil’s consumer prices in August climbed less than analysts expected, as the central bank signals it will hold rates steady to combat above-target inflation in the wake of a sovereign downgrade to junk.

Monthly inflation as measured by the benchmark IPCA index slowed to 0.22 percent from 0.62 percent in July, the national statistics agency said Thursday in Rio de Janeiro. That was slower than the median 0.23 percent estimate from 43 economists surveyed by Bloomberg. Inflation in the 12 months through August decelerated to 9.53 percent from 9.56 percent a month earlier.

With inflation forecast to end the year at double the official target, the central bank raised rates at seven straight meetings, to the highest since 2006, before holding rates steady last week. Finance Minister Joaquim Levy’s efforts to restore fiscal discipline have failed to stop the budget deficit from ballooning, which led Standard & Poor’s to cut Brazil’s credit rating to junk on Wednesday.

Swap rates on the contract due January 2017 rose 45 basis points, or 0.45 percentage point, to 15.35 percent at 9:05 a.m. local time. The real weakened 0.43 percent to 3.7963 per U.S. dollar. It has dropped 31 percent this year, more than all other major currencies tracked by Bloomberg.

Food and beverage prices in August fell 0.01 percent, after a 0.65 percent rise in July, the statistics agency said in its report. Transport prices declined 0.27 percent, after a 0.15 percent increase the month before. The cost of education rose 0.82 after being unchanged the previous month.

Brazil targets inflation of 4.5 percent, plus or minus two percentage points.

For related news and information:
Brazil economic snapshot: ESNP BR
Top Brazil news: TOP BZ
Most-read Latin American news: MNI LATAM
Emerging-market market data: EMMV

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