Brazil February Retail Sales Unexpectedly Fall on Confidence

Brazil’s retail sales in February unexpectedly declined, as consumer confidence plummets in the world’s second-biggest emerging market.

Sales fell 0.1 percent after a revised 0.3 percent increase in January, the national statistics agency said in Rio de Janeiro. That was below the median 0.2 percent estimate from 35 economists surveyed by Bloomberg.

President Dilma Rousseff’s government is caught between stagnant economic activity and above-target inflation, and the combination of the two has brought confidence to its lowest in nearly a decade. Four straight central bank interest rate increases have yet to slow inflation that’s squeezing families. The government this year raised the price of regulated items like electricity, and in November boosted gasoline costs.

“Consumer confidence is very low, consumers are rethinking whether they should keep shopping or not,” Pedro Tuesta, an economist with 4Cast Ltd., said by telephone from Washington. A third straight decline in fuel sales “suggests Brazilians may be cutting down on transport. If we have another negative in March then we may see they are using their cars less and that could be a sign their budgets are really tight.”

Swap rates on the contract due January 2017 fell eight basis points, or 0.08 percentage point, to 13.16 percent at 9:50 a.m. local time. The real strengthened 0.9 percent to 3.0919 per U.S. dollar.

Sales of food, beverages and tobacco at hypermarkets and supermarkets dropped 0.2 percent after a revised 0.4 percent increase in January. Sales of fuels and lubricants dropped 5.3 percent from January, when they fell 1 percent. Sales of office equipment and materials sank 1.3 percent after a 13.5 percent jump.

Car Sales

Retail sales in February fell 3.1 percent from the previous year, versus a median forecast for 2.2 percent decline. The broader retail index, which includes cars and construction materials, dropped 10.3 percent from a year ago, versus a median estimate for a 9.9 percent tumble. The broad yearly number includes a 23.7 percent drop in sales of cars and car parts.

“Vehicle sales are showing some deceleration, credit concession has decreased, and consumer confidence has also dropped,” Flavio Serrano, a senior economist at BESI Brasil, said by phone from Sao Paulo. “This affects the broad retail much more.”

Weaker Real

The higher cost of government-regulated items such as electricity and a weaker real are fueling inflation that has accelerated since December to 8.13 percent, its fastest pace in more than a decade. Economists surveyed by the central bank expect it to close the year at the same level. The central bank targets an annual rate of 4.5 percent, plus or minus two percentage points.

Consumer confidence as measured by the Getulio Vargas Foundation slipped in March to its lowest since the survey began. Even after a steady decline in sentiment that began in 2012, consumer spending grew 1.1 percent in the fourth quarter and accounted for 63.2 percent of overall gross domestic product.

After expanding 0.1 percent in 2014, the economy will contract 1.01 percent this year, according to analysts surveyed by the central bank. Brazil’s jobless rate in February rose to 5.9 percent, its highest level since mid-2013. It will rise further to 7.3 percent by year-end, according to an April 10 report from Ilan Goldfajn, chief economist at Itau Unibanco SA.

“The outlook for private consumption and retail sales in the near term remains very weak,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a report. That is “due to moderating credit flows by both private and public banks, high levels of household indebtedness, decelerating job creation and real wage growth, rising interest rates, higher taxes, higher utility and transportation tariffs, and depressed consumer confidence.”

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