Global Rise of Food Prices Will Likely Boost Brazil Inflation

SAO PAULO - The global rise in food prices continued to fuel Brazil's inflation in the month to mid-September, boosted by government's efforts to curb currency gains, a Reuters poll showed.

The government's IPCA-15 consumer price index likely rose 0.45 percent in the month to mid-September, up from a 0.39 percent increase one month before, according to the median forecast of 23 analysts surveyed by Reuters.

The numbers, due out on Thursday, will likely add to evidence that the central bank is near the end of a year-long cycle of interest rate cuts - but may not be strong enough to tell whether policymakers will make one last cut in October.

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Higher food prices have surprised Brazilian authorities in recent months, undermining their view that 12-month inflation would fall in line with a 4.5 percent target by year-end.

Bad weather has affected tomato producing areas in Brazil, causing local prices to soar. Now, analysts expect the country to feel a greater impact from the sharp rise in global food costs due to a severe drought in the United States.

"The pressure may linger for longer: we believe that the bulk of the ongoing soft commodity shock should show up in fourth-quarter inflation prints," Morgan Stanley analysts led by Gray Newman wrote in a research note.

In the 12 months to mid-September, according to the poll, inflation will likely remain around 5.3 percent, or down slightly down from the 5.37 percent rate seen one month before, still far from the center of the official target.

Some analysts have said the rise in food prices could be partly offset if the government allowed Brazil's currency, the real, to strengthen.

Brazil's Finance Minister Guido Mantega has repeatedly said he would deploy an "arsenal" of measures to fight currency gains hurting industrial competitiveness. The real has traded near two per dollar since early June.

Since then, the Thomson Reuters-Jefferies CRB index <.CRB> of 19 global commodity prices has also jumped around 15 percent.

"This is a very expressive gain. The impact has been felt in wholesale prices so far and will now be felt by consumers," said Luciano Rostagno, chief strategist at WestLB in Sao Paulo.

Among other sectors, the rise in energy prices probably slowed, according to Newton Rosa, chief economist at SulAmerica Investimentos. But costs of services likely remained under pressure as low unemployment pushes up wages.

Brazil, the world's sixth-largest economy, is recovering slowly after a year of stagnating economic activity.

A slight majority of analysts expect the central bank to cut interest rates for the tenth time in a row on October 10 to an all-time low of 7.25 percent, but many economists think it will hold its benchmark rate as the economy gears up.

Brazil's statistics agency IBGE will release the data on Thursday at 9 a.m. local time (1200 GMT).

Forecasts ranged from 0.32 percent to 0.50 percent.