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Brazil’s inflation at lowest in nearly 2 yearsRICARDO MORAES/Reuters

Brazil's inflation slowed to its lowest in almost two years on temporary tax breaks for autos, paving the way for more interest rate cuts as the government tries to revive economic growth.

Declining fuel and electricity costs also pushed inflation down, adding to evidence of very tame inflation in Latin America after surprisingly weak figures in Peru and Chile.

Brazil's benchmark IPCA consumer price index rose 0.08 per cent in June, the lowest monthly reading since August, 2010, and slightly below analysts' forecasts, government statistics agency IBGE said on Friday.

"This number should keep the central bank comfortable cutting rates," said Luciano Rostagno, chief economist at WestLB Brasil in São Paulo. "It leaves the door open for a cut in August."

In the 12 months through June, the IPCA index rose 4.92 per cent, the slowest pace since September, 2010. Trailing 12-month inflation ended 2011 at a seven-year high of 6.5 per cent, but it has since edged closer to the center of the government's target of 4.5 per cent.

Easing inflation has given Brazil's central bank room to slash its benchmark rate from 12.5 per cent in August to a current record low of 8.5 per cent. The bank is expected to deliver more cuts in coming months to boost economic activity, according to a Reuters poll.

Brazil, which passed Britain last year to become the world's No. 6 economy, is on track for its weakest economic performance in three years as factories struggle to cope with a global slowdown and rising local costs.

Anxious to revive growth, President Dilma Rousseff's administration has combined lower interest rates with tax breaks for targeted industries and consumers, as well as an increase in government purchases of industrial goods.

One of Ms. Rousseff's stimulus measures has also helped curb inflation. Transportation prices fell 1.18 per cent following a decline of 0.58 per cent in May as car makers cut prices following tax breaks for some vehicles until Aug. 31.

Fuel prices also declined, albeit with a smaller drop of 0.51 per cent in June compared to the 0.64 per cent fall in May.

Electricity prices declined 0.67 per cent in June, reversing a rise of 0.72 per cent in May, while apparel rose 0.39 per cent, after gaining 0.89 per cent in the prior month.

The IPCA index had been expected to rise 0.11 per cent, easing from an increase of 0.36 per cent in May, according to the median forecast of 30 analysts polled by Reuters. Estimates for the IPCA ranged from a 0.09 per cent to a 0.17 per cent rise.

Yields on rate futures fell immediately after the data was released, as traders reinforced bets on upcoming rate cuts.

Elsewhere in Latin America, Chile's consumer price index posted a surprise 0.3 per cent drop in June, the first monthly fall since August, 2010, as housing, water, electricity, fuel and transport costs retreated.

Earlier this month, Peru's consumer prices edged down 0.04 per cent in June from the previous month, slightly below forecasts, as food costs dropped.

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