Brazil's mid-month inflation index posts first drop in two years

SAO PAULO (Reuters) -Brazil's mid-month consumer price index posted its first drop in two years in August as electricity costs fell, official data showed on Tuesday, with the 12-month reading edging closer to the upper end of the central bank's target range.

Prices in Latin America's largest economy fell 0.14% in the month to mid-August, statistics agency IBGE said, down from a 0.33% increase in the previous month. Economists polled by Reuters expected a 0.19% drop.

The monthly decline was the first for the IPCA-15 index since July 2023, and comes as interest rates stand at a nearly 20-year high as part of the central bank's bid to tame persistent inflation.

The overall price drop was mainly driven by lower housing costs, with electricity costs decreasing sharply due to a one-off discount related to hydroelectric dam Itaipu's results, according to IBGE.

Closely watched food and beverage prices also slipped in the month, alongside declines in transport and communication costs.

Annual inflation came in at 4.95% in the early August reading, IBGE said, down from 5.30% a month earlier but slightly above the 4.91% expected by economists in the Reuters poll.

The key figure slipped below 5% for the first time since February in good news for Brazil's central bank, which targets inflation at 3% - plus or minus 1.5 percentage points - and has pledged to bring it back to that level.

The bank last month interrupted an aggressive tightening cycle that had added 450 basis points to its benchmark interest rate, bringing it to 15%, the highest level since July 2006.

(Reporting by Gabriel Araujo; Editing by Alison Williams)

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