Brazil annual inflation hits lowest this year in September

* Inflation to stabilize above target, economists say

* Consumer prices rise 0.35 in Sep vs Aug

* 12-month rate eases to 5.86 pct, from 6.09 pct in August

* Month-on-month core measures rise in September

By Silvio Cascione

SAO PAULO, Oct 9 (Reuters) - Brazil's annual inflation hit

its lowest rate this year as food price increases remained

restrained after a sharp increase in late 2012.

Brazil's benchmark IPCA consumer price index

rose 5.86 percent in the 12 months through September, easing

from its 6.09 percent 12-month advance in the prior month,

government statistics agency IBGE said on Wednesday.

However, a pick-up in the monthly rate, led by higher

apparel and transport costs, suggested inflation will likely

stay for months well above the center of the government's

inflation target range.

That could prompt the central bank to signal additional

interest rate increases at the end of its monetary policy

meeting later on Wednesday.

The central bank targets inflation of 4.5 percent, with a

tolerance margin of 2 percentage points. September's reading

matched the median forecast in a Reuters poll of 29 economists.

Economists see the annual inflation rate stabilizing at its

current level and ending this year at 5.82 percent, according to

the median forecast of analysts surveyed in a weekly central

bank poll released on Monday.

RESTRAINED FOOD PRICES

In the month of September alone, the IPCA index

rose 0.35 percent, up from 0.24 percent in August. Average core

measures, which strip out the most volatile prices such as some

food items, gained 0.45 percent, up from 0.41 percent in the

previous month, according to Banco Fator calculations.

Food and beverage prices, the weightiest component of the

IPCA index, rose 0.14 percent, a meager increase from the 0.01

post rise in August.

That was a far cry from skyrocketing food prices in late

2012 and early 2013 following a severe drought in the United

States, which sent up prices of several products like corn and

soy. Bad weather in Brazil had also increased prices of tomatoes

and onions.

In January this year, food and beverage prices rose 1.99

percent and than begin slowly moderating their advance, thus

helping cool overall inflation.

FUEL PRICE HIKE SEEN

But offsetting the moderating influence of food prices could

be an anticipated price rise in fuel, which could send prices

higher of transport, another key component of the IPCA index,

which rose 0.44 percent in September.

Analysts widely expect the government to authorize

state-owned Petroleo Brasileiro SA to hike fuel

prices by year-end, which would also drive inflation higher.

Brasilia has stopped state-owned Petrobras from raising

gasoline prices since January to help keep inflation in check,

eroding the company's ability to finance its $237 billion

five-year investment plan.

Intent on lowering inflation towards the center of the

target next year, the central bank is widely expected to raise

its benchmark rate by 50 basis points on Wednesday

to 9.50 percent, the highest among the world's largest

economies, according to a Reuters poll on Friday.

The bank could also signal additional rate increases in

November and early next year, some economists say, which would

lead the so-called Selic rate back to double-digit levels after

staying at record lows for nearly a year.

A preview of the IPCA index for September, the IPCA-15

, already showed annual inflation below 6 percent in

the month to mid-September. The IPCA-15 index is also calculated

by IBGE.

Below is the result for each price category in October:

September August

- Food and beverages 0.14 0.01

- Housing 0.62 0.57

- Household articles 0.65 0.89

- Apparel 0.63 0.08

- Transport 0.44 -0.06

- Health and personal care 0.46 0.45

- Personal expenses 0.20 0.39

- Education 0.12 0.67

- Communication -0.04 0.02

- IPCA 0.35 0.24