While it is expected to decelerate again, risks are increasingly tilted to the upside from the potential impact of the El Niño weather pattern on agricultural output which has been abundant so far this year.

The IPCA inflation index due on Wednesday probably gained 0.34% last month over August and 5.27% in yearly terms, the quickest rate since February, according to the median estimate of 26 economists polled Oct. 4-9.

"Prices of industrial goods remained relatively low and services continued at acceptable levels ... the headline figure was probably pushed by gasoline costs," said Yan Barros, an economist at Ace Capital.

Brazilian state-run company Petrobras has been raising fuel prices following movements in international oil markets in recent weeks. On Monday, Petrobras warned the conflict in Israel could create more volatility.

El Niño, a warming of water temperatures in the Pacific Ocean that is linked to extreme weather conditions, is another source of concern, with crops already under threat in Australia, India and some other countries.

"Inflation should have peaked in September and could resume a declining trend thereafter," Sicredi analysts wrote in a report. "If the impact of El Niño is confirmed, it will be felt in 2024".

Higher oil prices and weather risks, combined with worries over Brazil's fiscal issues and steeper U.S. yields, have kept inflation expectations at undesirable levels, slightly above official goals.

The consensus forecast for this year remains at 4.86%, according to the central bank's latest weekly poll among private economists, potentially surpassing the official goal for 2023 of 3.25% plus or minus 1.5 percentage points.

Brazil's central bank monetary policy director said the eruption of violence in the Middle East was contributing to a challenging external environment, but reinforced policymakers' commitment to keep lowering borrowing costs.

Banco Central do Brasil is set to continue delivering small rate cuts, staying watchful for any possible resurgence of inflationary pressures amid growing uncertainty for 2024 after a surprisingly good economic performance in the country this year.

(Reporting and polling by Gabriel Burin; Editing by Andrew Cawthorne)

By Gabriel Burin