Brazil's annual inflation exceeds 5% ahead of rate hike

SAO PAULO, March 12 (Reuters) - Brazil's annual inflation exceeded 5% for the first time in over a year in February, remaining well above the official target ahead of a policy meeting at which the central bank is all but certain to press ahead with aggressive monetary tightening.

Consumer prices in Latin America's largest economy rose 5.06% in the 12 months through February, statistics agency IBGE said on Wednesday, accelerating from the previous month's 4.56% although in line with the 5.05% expected in a Reuters poll.

That was the highest annual inflation reading since September 2023.

Brazil's central bank targets inflation at 3%, plus or minus 1.5 percentage points, and has been hiking interest rates since September as policymakers pledge to bring prices back to the official goal.

The bank has a third consecutive 100-basis-point increase to the benchmark Selic rate penciled in for its next meeting on March 18-19, which should take it to a more than eight-year high of 14.25%.

"Our base case is that next week's meeting will see the final hike in the tightening cycle, but the likelihood of one or two smaller hikes after that is rising," William Jackson of Capital Economics said.

On top of the above-target annual reading, consumer prices in February rose 1.31% from the previous month - the highest monthly figure since early 2022 and the highest for February since 2003, according to IBGE.

Economists in a Reuters poll expected an increase of 1.30%.

The monthly data was mainly related to higher housing and education costs.

One-time credits on household energy bills had driven electricity costs down in January, but their absence sent those prices soaring on a monthly basis in February, which is also marked by annual education price readjustments.

IBGE noted that food and transport prices also rose in the month, further weighing on the overall index.

Elevated prices, especially of food, have been hurting President Luiz Inacio Lula da Silva's popularity and led the government to slash food import taxes last week. The leftist leader has vowed to bring inflation down.

"Weakening domestic demand and persistently tight financial conditions will constrain the inflation uptrend," Pantheon Macroeconomics' Andres Abadia said. "But the PMIs continue to suggest a challenging first half of the year."