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Brazil November Retail Slow for First Time in Three Months

Brazil’s retail sales slowed for the first time in three months in November as the consumer-led growth that has compensated for a contraction in investments shows signs of moderating.

The volume of sales rose 0.3 percent, after increasing 0.8 percent in October, the national statistics agency said today in Rio de Janeiro. The median estimate of 30 economists surveyed by Bloomberg was for sales to gain 0.2 percent. From the year earlier, sales increased 8.4 percent, in line with the 8.3 percent forecast of 32 economists surveyed.

“The pace has diminished and we expect this to continue over the current year as the consumption growth model has less room to push the economy,” Luciano Rostagno, the chief strategist at Banco WestLB do Brasil SA, said by telephone from Sao Paulo. “We have to work on investments and give the industry conditions to grow at a similar pace to that of consumption.”

President Dilma Rousseff’s government reduced taxes on payrolls, boosted subsidized credit and disclosed a plan to cut energy rates in an effort to lure investments that have contracted since the second half of 2011. At the same time, she reduced taxes on consumer goods and pressured banks to reduce borrowing costs to boost demand that helped push the inflation rate to a ten-month high in December.

Rates on hold

After reducing the benchmark interest rate more than any other Group of 20 nation to a record 7.25 percent last year, the central bank will keep the key rate unchanged for a second straight meeting tomorrow to avoid further stoking inflation, according to all 53 analysts surveyed by Bloomberg.

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo, were unchanged at 7.69 percent at 10:04 a.m. local time. The real weakened 0.31 percent to 2.0379 per dollar.

Brazil’s central bank estimates the economy grew 1 percent last year, its worst performance since 2009, while economists surveyed by the bank forecast 3.2 percent growth this year. The economy grew 2.7 percent in 2011 and 7.5 percent in 2010.

The government’s IPI tax cuts for goods including furniture, appliances and automobiles increased demand in 2012, and pushed retail sales to expand 8.9 percent in the first 11 months of 2012, up from 6.7 percent a year earlier. Industrial production fell 2.7 percent in the same period.

Inflation accelerated to 5.84 percent in December led by a jump in service and food prices, the national statistics agency said Jan. 10.

Tax cuts

Finance Minister Guido Mantega announced on Dec. 19 the extension of IPI tax cuts on some consumer goods through June, though at lower levels. He also announced that retailers, excluding supermarkets, will be exempt from payroll taxes starting in April.

Retail sales have been bolstered by low unemployment that reached 4.9 percent in November, its second-lowest level ever, and rising real wages. Still, the consumer default rate rose to 7.8 percent in November from 5.7 percent in January 2011.

Families may not be inclined to take on more debt going forward, particularly given the expiration of IPI tax cuts that will raise the prices of durable goods, said Pedro Tuesta, chief economist at 4Cast Inc.

The broader retail index, which includes the sale of cars and construction materials, rose 7.2 percent from the previous year, the statistics agency said. That’s less than half the annual growth registered in October.

“You can’t pump up consumption forever,” Tuesta said by telephone from New York. “At some point you will see consumption slow down, and that’s what the market’s looking at. It’s a process in which consumption slows to a more sustainable level.”

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