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Brazil diffusion index fell to lowest since at least 1999

Staff Writer |
Brazilian consumer prices rose in July on higher power costs and a fuel tax hike following deflation in June, even as the annual rate fell to its lowest in 18 years.

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Prices as measured by the benchmark IPCA index rose 0.24 percent last month, turning positive after a 0.23 percent drop the month before, government statistics agency IBGE said.

In the 12 months through July, inflation came in at 2.71 percent, the slowest since February 1999.

The figures came in slightly above the monthly rate of 0.19 percent and annual rate of 2.66 percent predicted by economists, according to the median of 25 forecasts.

Scarcer rains weighed down on hydropower last month and drove regulators to increase electricity rates, adding 0.20 percentage point to monthly inflation.

A mid-July increase in the PIS/Cofins social contribution tax on fuels also weighed on the index.

Pressure stemming from both factors should drag on through August, economists said, but that will do little to keep the central bank from continuing to cut interest rates aggressively.

Inflation has slowed sharply from double digits in early 2016 in the wake of Brazil's deepest recession in decades and a strong agricultural harvest.

That trend seemed intact in July as food prices slid for a third straight month.

The so-called diffusion index, which measures whether price pressure was widespread, fell to the lowest since at least 1999, according to calculations by consultancy firm MCM Consultores.

The official IPCA inflation rate now rests firmly below the bottom end of the government's target range of 4.5 percent plus or minus 1.5 percentage points, allowing the central bank to cut the benchmark Selic rate to a four-year low.

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