Mexico Retail Sales Unexpectedly Contracted in December

Mexican retail sales unexpectedly fell in December, bolstering expectations the central bank may cut interest rates this year for the first time since 2009.

Sales dropped 1.8 percent in December from a year earlier, the national statistics agency said today. The decline, the first since a 0.1 percent drop in April 2010, surprised all 18 analysts surveyed by Bloomberg, who had a median forecast for a 2 percent increase, and was the worst since the economy began emerging from a recession three years ago. Sales jumped 3.5 percent in November.

Slowing inflation and concern that Latin America’s second-biggest economy will be dragged down by stalled growth in the U.S led traders to increase bets that Banco de Mexico may cut interest rates this year. The central bank may have room to reduce borrowing costs if inflation continues to converge on its 3 percent target in a sustainable way, Banxico Governor Agustin Carstens said Feb. 13.

The drop in sales in December supports speculation the central bank will cut interest rates from a record-low 4.5 percent, said Rafael Camarena, an economist at Grupo Financiero Santander Mexico SAB.

‘Economy Moderating’

“This number surprised us, it’s weaker than we were looking for,” Camarena said in a telephone interview from Mexico City. “With other information, we see that this shows an economy moderating.”

Mexico’s peso extended declines after the report’s release, weakening 0.4 percent to 12.7734 per U.S. dollar at 10:09 a.m. in Mexico City.

The report follows a report last week that showed industrial output in December shrank for the first time in three years, surprising all 12 economists surveyed by Bloomberg.

Nineteen of 20 economists forecast the central bank will cut interest rates this year, according to a survey by Citigroup Inc.’s Banamex unit released yesterday. The median estimate was for a 50 basis-point cut in April, the survey showed. In the previous bi-weekly survey, eight of 18 analysts polled had called for a rate cut this year.

The decline in retail sales was led by a 9.8 percent drop in purchases of electric tools, computers and items for interior decorating, while sales of paper and entertainment products dropped 8.8 percent and vehicles and parts by 3.4 percent.

The decline may have been partly related to shoppers pushing forward pre-Christmas spending to “Buen Fin,” Spanish for “good weekend,” a government-sponsored sales push that was held from Nov. 16 to Nov. 19, Gustavo Hernandez, an economist at Bank of Nova Scotia, wrote in an e-mailed research note today.

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