December 21, 2017 / 12:30 PM / 9 months ago

UPDATE 1-Brazil inflation accelerates near official target in mid-Dec

 (Updates throughout with additional details)
    By Bruno Federowski
    BRASILIA, Dec 21 (Reuters) - Brazil's inflation rate
accelerated close to the bottom end of the official annual
target range in mid-December, bolstering doubts over whether it
would end the year below that point for the first time.
    Consumer prices measured by the benchmark IPCA index
             rose 2.94 percent in the 12 months through
mid-December, government statistics agency IBGE said, in line
with the median estimate from a Reuters poll of economists. 
    Brazil targets 4.5 percent inflation, with a tolerance
margin of 1.5 percentage points above or below, rounded to a
single decimal.
    Missing the target could strengthen the calls for additional
interest rate cuts early next year even as major austerity
efforts face legislative opposition.
    Price pressures have been muted throughout the year as Latin
America's largest economy emerged from the deepest recession on
record. Meanwhile, a monthslong period of food deflation due to
a bumper crop has proved longer and deeper than foreseen.
    The central bank acknowledged on Thursday that lower food
prices could put stronger-than-expected downward pressure on
inflation.             
    Although surging cooking gas prices could support inflation
in December, a regulatory decision to cut electricity rates has
kept a lid on it so far. A second cut is scheduled for January
after early summer rains boosted hydropower generation.
    The IPCA index rose 0.35 percent in mid-December from the
month before, a hair below the 0.36 percent forecast in the
Reuters survey.             
    For a 2017 inflation rate of 3 percent, the IPCA index would
have to rise 0.49 percent in December from November, compared
with a 0.30 percent gain a year earlier. Under Brazilian law,
the central bank would have to issue an open letter explaining
why inflation ended the year below the target.
    Interest rate futures suggest traders expect a
25-basis-point cut at the central bank's February meeting, with
a slim likelihood of a final reduction in March.          

 (Reporting by Bruno Federowski; Editing by Lisa Von Ahn)
  
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