UPDATE 2-Inflation in Brazil in July hits its highest level in 4 years, but the annual rate remains well below target


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BRASILIA, Aug. 7 (Reuters) – Brazilian inflation in July rose for this most month in four years, figures released Friday showed, driven by fuel and housing costs, although the annual measure remained significantly lower to the central bank’s year-end target.

The IPCA index rose 0.36% in July, the government statistics agency IBGE said, almost exactly in line with the 0.35% expected by economists in a Reuters poll.

Prices rose 2.31% in the 12 months to July, matching exactly the median forecast of 2.31% in the Reuters poll.

“The hike to 2.3% shouldn’t worry the central bank and, with the economy still very weak, we expect the Selic rate to remain at its all-time low this year and next,” said wrote the economists at Capital Economics in a note.

“Price pressures in Brazil remain very low. The headline rate is well below the central bank target… and inflation in most parts of the CPI basket other than transport fell between June and July, ”they said.

The official central bank inflation target for 2020 is 4.00% and 3.75% for next year, with a margin of error of 1.5 percentage points on either side.

In its statement accompanying its decision to cut the Selic benchmark rate this week to 2.00%, the central bank acknowledged that inflation is well below target despite lower borrowing costs and a weak currency. .

According to the IBGE, the main drivers in July were a 0.8% increase in transportation costs due to rising fuel prices and a 0.8% increase in housing costs. On their own, they accounted for almost 80% of the overall monthly rise in inflation.

Of the nine sectors covered, six showed inflation and three showed declining prices for the month, IBGE said. Clothing experienced the largest decline of the month, dropping 0.5%.

The cumulative inflation rate in the first seven months of the year was 0.46%, the IBGE said, and the annual increase of 2.3% marked the second consecutive rise from the all-time low 1.9% in May. (Reporting by Jamie McGeever; Editing by Kevin Liffey and Steve Orlofsky)


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