Brazil inflation rises more than expected as further rate hikes expected

By Isabel Teles

SAO PAULO, Nov 8 (Reuters) - Brazil's consumer prices rose more than expected in October, reinforcing inflationary concerns that led the country's central bank to accelerate its monetary tightening pace this week and signal further rate hikes ahead.

Inflation as measured by the benchmark index IPCA rose 0.56% last month in Latin America's largest economy, above market forecasts, the government statistics agency IBGE said on Friday.

Prices rose 4.76% in the 12 months through October, up from an increase of 4.42% in the previous month.

The accumulated inflation for the last 12 months is above the Brazilian central bank's 3% inflation target, which has a tolerance margin of plus or minus 1.5 percentage points.

According to IBGE, the inflation figures were boosted by a 4.74% increase in residential electricity prices, as in October a higher energy tariff was in force compared to September.

Housing costs saw a 1.49% increase and food and beverage costs were up 1.06%, contributing with 0.23 percentage points each to the October headline figure.

"The increase in the price of meat can be explained by a lower supply of these products, due to the dry weather and fewer animals being slaughtered, and a high volume of exports," IBGE survey manager Andre Almeida said.

PicPay economist Igor Cadilhac sees clear signs of deterioration in the most recent inflation reading, as "many of the underlying measures have stabilized at levels above the target".

The higher-than-expected figure comes after Brazil's central bank accelerated its policy tightening with a 50 basis point interest rate hike on Wednesday, leaving the door open for further increases while underscoring the need for fiscal discipline to counter inflation.

The bank's rate-setting committee, known as Copom, voted unanimously to lift its benchmark Selic rate to 11.25%.

Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said that there were increasing risks of the peak of interest rates being higher than currently forecast, "particularly if the government's soon-to-be announced cuts to public spending fail to soothe investors' concerns."

Brazilian interest rate futures on Friday priced in a 58% chance of a 75 bps rate hike at the central bank's next policy meeting, in December. (Reporting by Isabel Teles Editing by Gareth Jones and Alison Williams)