Bloomberg News

Brazilian Retail Sales Jump Limits Space for More Rate Cuts

September 13, 2011

(Updates analyst growth forecast in sixth paragraph.)

Sept. 13 (Bloomberg) -- Retail sales in Brazil jumped the most this year in July as a strong currency and near-full employment buoyed consumer demand.

July sales increased 1.4 percent, beating 24 of 32 forecasts in a Bloomberg survey of analysts whose median estimate was 1 percent. Sales rose 7.1 percent from a year ago, the national statistics agency said.

Today’s number shows that Brazil’s tight labor market continues to boost consumer confidence, said Flavio Serrano, senior economist at Espirito Santo Investment Bank in Sao Paulo. This makes it unlikely that policy makers will be able to cut borrowing costs much beyond January, he said.

“We see inflation dynamics showing a very pressured level,” Serrano said in a telephone interview. “At some point they will be unable to cut the benchmark rate further.”

Central bank President Alexandre Tombini lowered the benchmark interest rate a half point to 12 percent on Aug. 31, after raising it at the previous five policy meetings, citing a “substantial deterioration” in the global economy. Traders are betting Tombini will cut rates to 11 percent by the end of the year, according to Bloomberg estimates based on interest rate futures.

Stronger Growth

Serrano revised up his forecast for July growth as measured by the central bank’s seasonally-adjusted economic activity index to 0.4 percent, from 0.2 percent, after today’s number was published. The index is a proxy for gross domestic product.

Yields on the January 2013 interest-rate futures contract, the most traded in Sao Paulo today, rose one basis point, or 0.01 percentage point, to 10.62 percent at 11:00 a.m. New York time. The real weakened for the eighth straight day, falling 0.6 percent to 1.7122 per U.S. dollar.

Even as the industrial sector shrank in July from a year earlier, higher wages continued to bolster demand for consumer goods. Unemployment fell to 6 percent in July, its lowest level this year, while salaries for auto workers have risen as much as 20 percent in recent weeks. The country’s minimum wage, which is used to adjust pension payments, is slated to rise 14 percent next year.

Brazil’s economic growth slowed last quarter to 3.2 percent from a year earlier, down from 4.2 percent in the first quarter. The retail industry led the second-quarter expansion, increasing 4.9 percent from a year ago.

Appliances, Furniture

The July increase in retail sales was fueled by a 4 percent jump in sales of appliances and furniture, and was the best monthly performance since August 2010, when sales rose 1.8 percent. The broader retail index, which includes the sale of cars and construction materials, rose 0.6 percent, up from 0.3 percent in June.

Supermarket sales in July rose 4.75 percent from a year ago, Brazil’s Association of Supermarkets in Sao Paulo said on Aug. 29.

Consumer prices climbed 7.23 percent in the year through August, exceeding the 6.5 percent upper limit of the central bank’s target range for a fifth straight month. The bank targets inflation of 4.5 percent, plus or minus two percentage points.

Analysts covering the Brazilian economy raised their 2012 and 2013 inflation forecasts after the unexpected rate cut, according to a central bank survey of economists published yesterday. Consumer prices will rise 5.4 percent next year and 4.8 percent in 2013, the survey showed. The forecasts were up from 5.32 percent and 4.6 percent respectively the previous week.

Brazil jumped to first place, from fifth in 2010, in a study of top global markets for retail expansion in a study published in July by management consulting firm A.T. Kearney.

--Editors: Harry Maurer, Joshua Goodman, Philip Sanders

To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net Matthew Bristow in Brasilia at mbristow5@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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