BRASILIA (Reuters) - Brazil's inflation rate rose to nearly 9 percent in August, when the Rio Olympics added pressure on services prices, government data showed on Friday, clouding the outlook for interest rate cuts.

Consumer prices as measured by the benchmark IPCA index <BRCPI=ECI> rose 8.97 percent in the 12 months through August, up from an increase of 8.74 percent in the previous month, statistics agency IBGE said.

Prices rose 0.44 percent in August, in line with market forecasts in a Reuters poll.

Prices of hotel rooms and food in Rio de Janeiro rose much more than the national average in August as the city hosted the Olympic Games, IBGE said. Elsewhere in the country, food prices eased after a surprise surge in previous months, suggesting the inflation rate could still drop to about 7 percent by year-end, as economists and policymakers expect.

"The August IPCA, just like the mid-month data two weeks ago, came out in line with market expectations, but despite that, it did not look very good," Banco Fator Chief Economist José Francisco Gonçalves wrote in a research note.

Services prices rose 7.40 percent in the 12 months through August, up from 7.12 percent in July. An average of core inflation measures, excluding volatile items such as food prices, edged up to 7.85 percent from 7.77 percent.

The official inflation target is 4.5 percent, a goal last achieved in August 2010. Inflation has slowed from double-digits earlier this year as Brazil goes through the second year of a severe recession, with interest rates at 14.25 percent, their highest in 10 years.

Economists widely expect the central bank to start lowering interest rates in coming months as inflation eases, but there is no consensus about the timing of the first reduction. The minutes of the last rate-setting meeting, released on Tuesday, suggested the central bank could start cutting in October if inflation expectations drop.

(Reporting by Silvio Cascione; Editing by Lisa Von Ahn)