Brazil July Retail Sales Rise Ten Times Faster Than Forecast

Brazil’s July retail sales rose almost 10 times faster than economists forecast, adding pressure on the central bank to keep raising borrowing costs. Swap rates jumped.

Sales rose 1.9 percent from the previous month, after rising a revised 0.4 percent in June, the national statistics agency said today in Rio de Janeiro. The number was higher than all but one forecast from 30 economists surveyed by Bloomberg, whose median estimate was for a 0.2 percent increase. Retail sales jumped 6 percent from the same month last year, above the median forecast for a 3.1 percent rise.

Brazil’s central bank has undertaken the largest cycle of interest rate increases among major economies in a bid to tame above-target inflation, which hampered consumers in the first half of the year. With price increases easing, shoppers are once again opening their wallets, said Finance Minister Guido Mantega.

The retail data “prove consumption is recovering in the country, and shows the fall in inflation is giving the consumer more purchasing power,” Mantega told reporters today in Brasilia. “Credit is also improving a little and that is reflected in today’s retail sales, which were very good.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose seven basis points to 10.43 percent at 11:16 a.m. local time. The real weakened 0.3 percent to 2.2820 per U.S. dollar.

Cars, Construction

The broader retail index, which includes cars and construction materials, rose 0.6 percent from the previous month, the agency said today. That’s down from an increase of 0.9 percent last month.

Textiles, clothing and shoe sales rose 5.4 percent after a 2 percent fall in June, and furniture and home appliances rose 2.6 percent, up from 2.1 percent the previous month. Sales at supermarkets and hypermarkets jumped 1.5 percent after contracting 0.2 percent in June. In June, the government offered subsidized credit for low-income families to buy furniture and appliances.

“Today’s number was outside the trend, and I attribute it to supermarket sales of non-food products, like appliances, based on government incentives,” said Roberio Costa, chief economist at Banco Rabobank International Brasil, whose forecast was closest to the result. “It’s a credit that the government is giving and it won’t necessarily remain.”

Monetary Policy

The retail sales surprise may complicate matters for monetary policy makers. Economists are forecasting the benchmark Selic rate will end the year at 9.75 percent, with the central bank increasing the rate a total of 75 basis points in its coming two meetings.

“If the July trend is confirmed, Brazil’s central bank is in trouble,” Pedro Tuesta, a Latin America economist at 4Cast. Inc., said by phone from Washington. “It would mean domestic demand is still very strong and they have more trouble with inflation than we were considering.”

The bank may tack on an additional 25 basis points in its final meeting of 2013, Tuesta said.

Inflation in August slowed to 6.09 percent, the lowest level of 2013. The central bank targets inflation of 4.5 percent, plus or minus two percentage points. Brazil’s economy grew by 1.5 percent in the second quarter, led by investments, surprising analysts surveyed by Bloomberg, whose median estimate was for a 0.9 percent increase.

Since the second-quarter surprise, economists surveyed by the central bank have raised their 2013 GDP growth forecast to 2.35 percent from 2.2 percent on Aug. 23.

Demand Side

There are other signs of improvement on the demand side. Consumer confidence in August rebounded from a four-year low the prior month, according to the Fundacao Getulio Vargas. Consumer credit delinquency rates fell 5.5 percent in August, according to Serasa Experian, a consumer-credit rating firm. The consumer default rate in July stayed at its lowest level in two years.

The MSCI index of Brazilian consumer-discretionary stocks, which include Lojas Americanas, Lojas Renner SA and Cia. Hering, tumbled 18.1 percent this year. That compares with a 25 percent surge in the last six months of 2012. The Ibovespa stock exchange as a whole has lost 12.1 percent this year.

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