Brazil Sales Unexpectedly Slide as Inflation Crimps Shoppers

Brazil’s retail sales declined in February, surprising analysts who had forecast an increase, as accelerating inflation in Latin America’s largest market reduces consumers’ purchasing power.

The volume of sales fell 0.4 percent, after rising a revised 0.5 percent in January, the national statistics agency said today in Rio de Janeiro. The number was lower than estimated by all 30 analysts surveyed by Bloomberg, whose median estimate was for sales to gain 1.5 percent. In a separate report, the Getulio Vargas Foundation said today that its IGP-M inflation index of wholesale, construction and consumer prices rose 0.42 percent from March 21 to March 31, faster than the 0.24 percent median estimate in a Bloomberg survey.

With industrial production falling over the last year, retail sales have been a lifeline, and that support could be at risk as inflation crimps sales from supermarkets and hypermarkets, according to Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA. Brazil’s central bank has kept its key rate at a record low for its past three meetings in a bid to boost the economy, which last year had its worst performance since 2009.

“It’s another sign that inflation is beginning to take a toll on consumption in Brazil,” Rostagno said by telephone from Sao Paulo. “So it’s another push for the central bank to begin hiking rates. That’s why Brazil swap rates are going up.”

Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo today, rose 11 basis points, or 0.11 percentage point, to 8.01 percent at 11.06 a.m. local time. The real weakened 0.1 percent to 1.9747 per U.S. dollar.

Personal Items

The retail sales fall was led by a 1 percent drop in supermarket sales, a 2.9 percent drop in sales of personal and domestic items, and a 2.1 percent decline in sales of fuels and lubricants. Those falls were partially offset by a 5.2 percent increase in sales of office equipment and materials.

Brazil’s gross domestic product expanded 0.9 percent in 2012, down from 2.7 percent in 2011 and 7.5 percent in 2010. Economists in the latest central bank survey forecast growth of 3 percent this year, with 5.7 percent inflation. The central bank targets inflation of 4.5 percent plus or minus two percentage points.

Slower job creation and annual inflation that in March exceeded the government’s target range have left consumers more prudent about new purchases in spite of rising real wages, Andre Loes, chief Latin America economist at HSBC Bank Brasil SA, said by telephone from Sao Paulo on April 10.

“People have the sensation at the margin that their purchasing power is being challenged,” Loes said. Inflation accelerated to 6.59 percent in March, exceeding the upper limit of the target range for the first time since November 2011.

’Spare Measures’

Finance Minister Guido Mantega yesterday called food prices “the main villain” of inflation. Food and beverage prices led price increases in March, rising 1.14 percent, the statistics agency said yesterday.

“The government will not spare measures to contain inflation and prevent it from spreading,” Mantega said.

Brazil’s consumer confidence fell for six straight months through March to a three-year low, according to a survey conducted by the Getulio Vargas Foundation, even as the consumer default rate fell in February to its lowest level since December 2011.

Inflation “has become a limiting factor for purchases, because it is affecting the purchasing power of consumers in the lowest income bracket,” Viviane Seda, the FGV’s coordinator of the confidence survey, said by telephone from Rio de Janeiro on April 10. “They’re becoming very worried.”

Broad Retail

The broader retail index, which includes the sale of cars and construction materials, rose 1.2 percent from the previous year, the statistics agency said.

Brazil’s automobile sales fell to 170,080 units in February from 185,483 last year and 231,343 in January, according to national carmakers’ association Anfavea.

The Finance Ministry extended until year-end a tax cut on car sales that would have expired on April 1.

From the year earlier, retail sales fell 0.2 percent, the first annual decline since November 2003, compared with a forecast for a 3.5 percent increase from 27 economists surveyed.

It will be impossible for sales to grow this year as they have recently, said Andre Perfeito, chief economist for Gradual Investimentos.

“The only place with good news in economic activity in Brazil is domestic demand and retail sales, and both are showing signs of stress,” Perfeito said by telephone from Sao Paulo on April 9. “They’re not showing they can grow at the same rate that they were growing.”

Brazil’s central bank will hold its next monetary policy meeting on April 16-17. Bank president Alexandre Tombini said in Senate testimony last week that board members would wait for March inflation figures and other data before deciding on the next policy steps.

Before it's here, it's on the Bloomberg Terminal.