September 21, 2017 / 1:24 PM / a year ago

UPDATE 1-Lower food prices keep Brazil inflation near 18-year low

 (Updates throughout with details, context, market reaction)
    By Bruno Federowski
    SAO PAULO, Sept 21 (Reuters) - A decline in food prices kept
Brazil's inflation rate near 18-year lows in mid-September,
suggesting the central bank can take its time to halt interest
rate cuts.
    Consumer prices as measured by the IPCA-15 index rose 2.56
percent in the twelve months through mid-September, government
statistics agency IBGE said on Thursday.
    That was the lowest mid-month reading since 1999, when
Brazil adopted its current inflation-targeting regime, although
slightly above the 2.46 percent rate at the end of August.
Economists polled by Reuters expected a reading of 2.60 percent.
    Seven of the last eight bi-weekly inflation readings have
been lower than market expectations as a surprisingly strong
agricultural harvest reduced food prices. Recent signs of an
uptick in economic activity have had little effect on prices,
with services inflation still subdued.
    That may bolster bets that the central bank will slow its
pace of interest rate cuts only slightly at its October meeting,
after signaling a gradual end to the easing cycle earlier this
    Those expectations strengthened further after the central
bank on Thursday lowered its inflation forecasts for the coming
two years even as it predicted economic growth to pick up in
    Yields paid on interest-rate future contracts fell in early
trading as investors increased bets on a 75 basis-point cut next
month and unwound bets on a smaller 50 basis-point reduction.
The central bank cut the benchmark Selic rate by 100 basis
points at each of its last four policy meetings, bringing it
close to a record low.
    Inflation has remained below the bottom end of the central
bank's target range of 4.5 percent plus or minus 1.5 percentage
points since July. The central bank has missed its inflation
target three times in the last two decades, but has never
undershot it.
    The IPCA-15 index rose 0.11 percent from mid-August,
compared to a 0.35 percent increase the month before and below
the median economist forecast of 0.15 percent.
    Below is the result for each price category:
 (monthly percent change)    Mid-Sept   Mid-August
 - Food and beverages        -0.94      -0.65
 - Housing                   0.26       1.01
 - Household articles        0.04       0.21
 - Apparel                   0.31       -0.29
 - Transport                 1.25       1.35
 - Health and personal care  0.10       0.73
 - Personal expenses         0.45       0.34
 - Education                 0.09       0.19
 - Communication             -0.18      -0.32
 - IPCA-15                   0.11       0.35
 (Reporting by Bruno Federowski; Editing by Meredith Mazzilli)
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