The country's benchmark IPCA consumer price index rose 0.86 percent in January, the highest monthly reading since April 2005, government data showed on Thursday.

Food and cigarettes were the main inflation drivers, though analysts noted accelerating price rises for nearly three of every four product categories. Core measures were also stronger than in the same month a year ago, suggesting the recent inflation spike is not likely to fade quickly.

The number highlights the challenge facing President Dilma Rousseff, whose government has been trying to jump-start the economy, following two years of mediocre growth, with a delicate balance of record-low interest rates, a weaker currency and looser budget policy.

Economic activity has shown little signs of recovery so far, with manufacturing and business investment still lagging behind growth in consumer spending.

Now, with 12-month inflation dangerously near the top end of the official target, policymakers will have less leeway to stimulate the economy and could even be forced to raise interest rates later this year, analysts said.

"If inflation worsens in the next two or three months, that can lead to a monetary tightening later," said Carlos Kawall, chief economist at J.Safra, in Sao Paulo.

In the 12 months through January, inflation rose to 6.15 percent, the highest reading in a year. The government targets inflation at 4.5 percent, with a tolerance margin of plus or minus 2 percentage points.

Brazil is alone in its struggle against inflation among the largest market-friendly Latin American economies. Inflation has subsided elsewhere in the region, such as in Mexico and Chile, as a spike in global food prices fades.

Interest rate futures rose across the board in the BM&FBovespa exchange, suggesting more bets on rate hikes.

The central bank cut interest rates ten straight times through October 2012, to 7.25 percent, saying Brazil no longer needed one of the highest borrowing costs in the world to tame inflation. With low interest rates a top priority for President Rousseff, the government has been trying to use other tools to fight price rises, such as tax breaks.

A government-sponsored reduction in electricity power rates prevented January inflation from reaching 1 percent, said Juan Jensen, an economist with Tendencias Consultoria in Sao Paulo.

It should also limit the monthly price rise in February, though annual inflation is expected to remain above 6 percent - and possibly even breach the target ceiling - by at least mid-year, economists said.

The government is also mulling tax cuts on food staples, Rousseff and Finance Minister Guido Mantega said recently. Such measures will probably force the government to miss a key budget target this year.

The January IPCA index had been expected to rise 0.84 percent, from an increase of 0.79 percent in December, according to the median forecast of 31 economists surveyed by Reuters.

Forecasts for the rise ranged from 0.78 to 0.90 percent.

Personal expenses rose 1.55 percent from December; the category includes cigarettes whose prices spiked 10.11 percent. Food prices rose 1.99 percent.