Brazil January Retail Unexpectedly Rises on Office Equipment

Brazil’s January retail sales unexpectedly rose in January, as the central bank continues to raise rates to combat above-target inflation.

Sales rose 0.4 percent from the previous month after dropping 0.2 percent in December, the national statistics agency said today in Rio de Janeiro. That was better than forecast by all but 4 of 40 economists surveyed by Bloomberg, whose median estimate was for a 0.3 percent dip.

Growth in consumer demand, which has been the main driver of Brazil’s economy, slowed last year even as the unemployment rate remained near record lows. Spending is still strong enough to pressure inflation that has remained above target throughout Dilma Rousseff’s presidency, harming confidence. The central bank in the past year has raised borrowing costs by more than any country other than Turkey to rein in prices, pushing up rates on consumer loans. Continued retail strength adds to inflationary pressure, said Carlos Kawall, chief economist at Banco J. Safra.

“Consumption hasn’t adhered to the consumer sentiment surveys, which are showing decline,” Kawall said in a phone interview from Sao Paulo. “That is not really helpful for the central bank.”

Swap rates on the contract maturing in January 2015 were unchanged at 11.11 percent at 9:13 a.m. local time. The real strengthened 0.2 percent to 2.3514 per U.S. dollar.

Office Equipment

Sales of office equipment rose 6 percent after a 14.1 percent decline the previous month. Furniture and appliance sales increased 1.2 percent, reversing a 2.4 percent drop in December. Sales at supermarkets and hypermarkets rose 0.5 percent and have been on a growth “streak,” Kawall said.

Retail sales rose 6.2 percent from the same month last year, above the median forecast of 4.8 percent. The broader retail index, which includes cars and construction materials, rose 3.5 percent from a year ago, the agency said today.

Today’s annual data, while showing a “broad-based” increase, must be viewed in the context of the slowdown in consumption, according to Neil Shearing, chief emerging-markets economist at Capital Economics.

“The very strong growth rates we saw in 2011 and 2012 seem to have eased off,” Shearing said by phone from London. “That’s going to be the direction we head in the coming months as the effects of interest rate hikes feed through to the local economy.”

Brazil’s economy grew 2.3 percent in 2013, with family consumption growing at the same pace -- its slowest in a decade. While consumption has slowed, it is still backed by a strong labor market and sufficient to sustain growth in 2014, according to Kawall.

Selic Rate

The central bank has raised the benchmark Selic rate in eight consecutive meetings from a record-low 7.25 percent to 10.75 percent. Average loan interest rates to consumers climbed to 39.9 percent in January from 34.4 percent last April, when policy makers started lifting the Selic, according to central bank data.

Policy makers target inflation of 4.5 percent, plus or minus two percentage points. Inflation accelerated to 5.91 percent in 2013 from 5.84 percent in 2012, and analysts surveyed by the bank expect it will accelerate to 6.01 percent this year. Consumer prices rose 5.68 percent in the year through February, the statistics institute reported yesterday.

Consumer confidence has tumbled since mid-2012 and in February reached its lowest level in more than 4 1/2 years, according to the Getulio Vargas Foundation. Consumer spending accounted for 62.5 percent of GDP in 2013.

“Even in Brazil with the GDP slowdown, our categories are still growing mid- to high-single digits,” Ian Cook, CEO of Colgate-Palmolive Co., said in an earnings call on Jan. 30. “That’s a combination of the still emerging middle class, our ability to increase penetration, our ability to educate to increase usage, and our ability to trade up intelligently consumers in the business.”

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