Brazil Retail Sales Fell in April for First Time in a Year

Brazil’s retail sales unexpectedly fell in April for the first time in a year, after higher fuel and food prices prompted consumers to buy less and Latin America’s biggest economy showed more signs of slowing.

Retail sales fell 0.2 percent in April from March, after expanding a revised 1 percent in March, the national statistics agency said today. The contraction surprised 26 of 30 economists in a Bloomberg survey who expected sales to expand from the previous month and whose median estimate was for a 0.4 percent growth. Sales rose 10 percent from a year ago, the agency said.

“The slowdown in sales came after inflation, namely fuel and food, quickened,” said Luciano Rostagno, the chief strategist at Sao Paulo-based CM Capital Markets. “These prices are coming back down and unemployment is at record lows so sales are likely to rebound.”

Brazil’s policy makers are trying to cool consumer demand by increasing borrowing costs and implementing tighter liquidity requirements for banks to curb consumer lending growth. President Dilma Rousseff’s government is also trying to prevent Latin America’s biggest economy from overheating by reducing spending.

Yields on interest-rate futures fell for contracts due more than a year from now. The yield on the contract due January 2013 dropped two basis points to 12.47 percent at 9:00 a.m. New York time. Yields for contracts due January 2012 were unchanged. The real fell 0.1 percent to 1.5852 per U.S. dollar.

Rate Expectations

Concern the global recovery may falter is the main reason for the decline in Brazilian interest rate expectations, rather than the slowdown in consumer spending, said Rostagno.

Retail sales in April declined on a monthly basis for the first time since April 2010, when the volume of goods sold fell 0.1 percent. Higher fuel costs led car owners to drive less, as gasoline sales declined 1.6 percent. A 13.6 percent plunge in office and communications equipment sales led six of 10 categories that posted declines.

The broader retail index, which includes car sales, rose 1.1 percent from March.

The central bank on June 8 raised its benchmark lending rate for a fourth straight time, increasing the Selic target rate by a quarter-point to 12.25 percent. Policy makers, in their statement accompanying the decision, kept a pledge to raise borrowing costs for a “sufficiently long period” to bring inflation back to target in 2012.

Central Bank President Alexandre Tombini on March 22 told lawmakers that growth in consumer credit of more than 15 percent needs to be monitored “very carefully.” Total outstanding credit rose 21 percent from a year earlier in April, according to the central bank.

Economy Slowing

After gaining speed in the first quarter, when gross domestic product expanded 1.3 percent from the previous three-month period, Brazil’s economy has shown signs of slowing.

Industrial production slumped 2.1 percent in April from March, the biggest contraction since 2008, and consumer confidence fell in May to its lowest level in more than a year. Average real wages fell 1.8 percent in April from March.

Tombini may stop raising the benchmark interest rate as soon as August, after a quarter-point increase in July, according to calculations by Bloomberg based on interest-rate future contracts.

Monthly inflation slowed to 0.47 percent in May, from 0.77 percent in April, as fuel prices slumped and 5 percent gains by the currency over the past three months cut costs for imports. The real’s gains since March 1 make it the second-best performing currency among seven in Latin America tracked by Bloomberg, after Colombia’s peso.

Bolster Demand

Slowing inflation will bolster consumer demand, said Jorge M. Ricca, head of stock funds at BB DTVM, the asset-management unit of Banco do Brasil SA and the nation’s biggest asset manager.

Ricca said in a May 27 interview that he is buying homebuilders and retailers on speculation inflation pressures will ease even as lower unemployment means Brazil’s “robust” demand will keep expanding.

To be sure, near-full employment levels continue to be a concern for policy makers. Nationwide, workers are demanding bigger wage increases as Brazil’s unemployment rate fell in April to 6.4 percent, the lowest level on record for the month. Firemen in Rio de Janeiro, assembly line workers for Volkswagen AG in Parana state and transportation workers in Brasilia are all currently on strike, demanding raises above inflation.

Brazil jumped to first place, from fifth in 2010, in a study of top global markets for retail expansion in a study published June 6 by management consulting firm A.T. Kearney.

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