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Brazil March Retail Sales Rise Offsets Industrial Weakness

Brazil’s retail sales in March rose for the fifth time in seven months, as President Dilma Rousseff cuts interest rates and taxes to bolster consumer demand that has been the engine of the world’s sixth-largest economy.

The volume of sales rose 0.2 percent after zero growth in February, the national statistics agency said today in Rio de Janeiro. Economists had predicted an increase of 0.3 percent, according to the median estimate from 37 analysts surveyed by Bloomberg. Sales jumped 12.5 percent from a year earlier, the largest increase since March 2010.

Policy makers have reduced the benchmark Selic rate by 350 basis points since August, while public banks last month said they would cut their lending rates by as much as 21 percent to help boost economic growth that slowed to 2.7 percent last year from 7.5 percent in 2010. The Rousseff administration has also extended tax cuts for appliances to stimulate consumer spending and eliminated payroll taxes for industries including textiles and shoes.

“Consumer demand is moderate but it’s still helping to offset weak industrial output and supporting economic growth,” Solange Srour, chief economist at BNY Mellon ARX Investimentos, said by telephone from Rio de Janeiro. “Higher credit default rates are delaying the impact of the falling Selic rate.”

While a consumer credit boom fueled by an expanding middle class helped drive economic growth of 7.5 percent in 2010 and converted Brazil into a leading market for cellular phones, cars and television sets, borrowers’ growing difficulties in repaying loans has slowed some sectors. Consumer credit delinquency jumped 23.7 percent in April from a year earlier, while vehicle sales fell the most in more than a year in April.

Futures Rise

The yield on the interest rate futures contract maturing in January 2013, the most traded in Sao Paulo today, rose six basis points, or 0.60 percentage point, to 7.85 percent at 10:42 a.m. Brasilia time. The real gained 0.1 percent to 1.9993 per dollar.

Major retailers showed stronger sales in the first quarter and mixed financial results. Sao Paulo-based Cia Brasileira de Distribuicao Grupo Pao de Acucar, the country’s largest retailer, saw its consolidated first quarter net income rise 25.8 percent to 167 million reais ($83 million) from a year earlier, as same-store sales rose 9.6 percent.

Internet Sales

Magazine Luiza SA, a Sao Paulo-based retailer, posted a loss of 40.7 million reais compared with a 12.3 million reais profit a year earlier. The company said on May 14 it expected sales to grow in the remainder of 2012 fueled by new stores, Internet sales and the “reduction in the basic interest rate to its lowest level ever.”

With a depreciating real, which makes imported goods more costly, domestic manufacturers expect to claw back market share from foreign competitors, Humberto Barbato, head of the electronics industry group Abinee, told reporters yesterday.

“Given the exchange rate, we hope to revert the scenario in the short term, reducing imports,” he said.

The real has lost 14.3 percent against the dollar in the past three months, the worst performance among major currencies tracked by Bloomberg.

The broader retail index, which includes the sale of cars and construction materials, rose 10.2 percent from the previous year, the statistics agency said.

Annual inflation slowed to 5.1 percent in April, the lowest rate in 19 months. The central bank targets inflation of 4.5 percent, plus or minus two percentage points.

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