Brazil Retail Sales Unexpectedly Fall Amid Weak Confidence

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Brazil’s retail sales in April unexpectedly declined as the prospect of recession undermines confidence in Latin America’s largest economy.

Sales dropped 0.4 percent after a revised 1 percent decline in March, the national statistics agency said in Rio de Janeiro. That was weaker than all but one estimate from 33 economists surveyed by Bloomberg, whose median forecast was for a 0.7 percent increase.

A weaker economy has yet to persuade the central bank to slow or stop its monetary tightening cycle. The combination of above-target inflation that’s eating into real wages, the highest interest rates since 2009, rising joblessness and depressed sentiment have weighed on sales.

“It was a negative surprise, but it is not as weird in terms of the scenario we’re living in,” Jankiel Santos, chief economist at BESI Brasil, said by phone from Sao Paulo. “It’s really widespread, which tends to show me that it’s the effect of credit, income level and consumer confidence. All of these just going in the other direction instead of expansion.”

Swap rates on the contract due January 2017 fell seven basis points to 13.99 percent at 10:04 a.m. local time. The real strengthened 0.7 percent to 3.1043 per U.S. dollar.

Not Enough

Analysts had expected supermarket sales to have a “tremendous impact” and, while they increased, it wasn’t enough to offset the other declines, according to Santos.

Sales of food, beverages and tobacco at hypermarkets and supermarkets rose 1.9 percent after a 2.2 percent drop in March. Articles for personal and domestic use fell 5.1 percent, while furniture and appliances dropped 3.1 percent.

In a bid to stem consumer price increases, central bank directors led by President Alexandre Tombini have raised the key interest rate in six straight meetings, to 13.75 percent. That’s the highest since January 2009, even as economists surveyed by the bank estimate the economy will shrink 1.35 percent this year.

Today’s data won’t prevent policy makers from maintaining the half-point pace of tightening at the next monetary policy meeting, known as Copom, according to Thais Zara, chief economist at Rosenberg Consultores Associados. Twelve-month inflation is running at 8.47 percent, nearly four percentage points above the midpoint of the target range.

‘Rather Difficult’

“You’ve already had all this deceleration in sales, but that hasn’t yet been reflected in prices,” Zara said by phone from Sao Paulo. “So I don’t think that changes the Copom position.”

Retail sales in April fell 3.5 percent from the previous year, versus a median forecast for a 1.8 percent decline. That follows a revised 0.3 percent gain last month.

The broader retail index, which includes cars and construction materials, tumbled 8.5 percent from a year ago, versus a median estimate for a 8 percent drop.

Family consumption fell in the first quarter more than any of the other components of Brazil’s gross domestic product. The decline today signals a “rather difficult” second quarter as well, according to Rosenberg’s Zara.

“Some deceleration in terms of economic activity is what the central bank wants to see to bring inflation down,” BESI’s Santos said. “In Tombini’s shoes, he’s looking at that and saying we’re reaping the fruits of all the hikes we’ve been doing over the past year and a half.”

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