Brazil’s retail sales unexpectedly jumped in June, as an increase in furniture and appliance purchases signaled that interest-rate and tax cuts may be spurring demand. Swap rates rose.
The volume of sales climbed 1.5 percent, compared with a drop of 0.8 percent in May and the biggest rise since a 3.2 percent jump in January, the national statistics agency said today in Rio de Janeiro. The median forecast of 38 analysts surveyed by Bloomberg was for a 0.3 percent decline. Annual sales jumped 9.5 percent.
President Dilma Rousseff’s government has granted tax breaks for goods including furniture, appliances and automobiles to prop up demand and spur faltering growth. The central bank has also cut its benchmark interest rate to a record low 8 percent, while Rousseff’s administration has successfully pressured banks to lower lending rates.
“There’s strength across the board,” Italo Lombardi, Latin America economist at Standard Chartered Bank, said by phone from New York. “It’s a good sign. This reinforces the idea that we may be seeing a stronger recovery. We may be leaving this soft patch behind in terms of demand.”
The profits of Brazil’s biggest retailer, Cia. Brasileira de Distribuicao Grupo Pao de Acucar, rose 180 percent in the second quarter. Fellow retailer Magazine Luiza SA (MGLU3) saw a nearly five-fold growth in second-quarter profits, while profits at Natura Cosmeticos SA (NATU3), Latin America’s largest cosmetics company, increased 14 percent.
Brazil’s economy grew at a 0.8 percent annualized rate in the first quarter, down from 2.7 percent last year and 7.5 percent in 2010. Latin America’s biggest economy will grow 1.8 percent this year, its second-worst performance since 2003, according to the latest central bank survey of about 100 analysts. The economy will be growing at a 4 percent annual pace by year-end and will enter 2013 at “cruising speed,” Finance Minister Guido Mantega told reporters today.
“Policy makers have become increasingly confident that growth is going to recover quite strongly next year,” Neil Shearing, chief emerging markets economist at Capital Economics Ltd., said by telephone from London. “I don’t think that’s going to be the case, but they clearly do and I think we’re getting close to the end of the rate cutting cycle.”
Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo today, rose 14 basis points, or 0.14 percentage point, to 7.89 percent at 12:57 p.m. local time. The real rose 0.1 percent to 2.0207 per dollar.
The central bank has lowered the Selic benchmark rate 450 points since last August. The retail sales results may alter expectations for further cuts, Ines Filipa, chief economist at brokerage Icap do Brasil CTVM, said.
“There were traders in the market yesterday expecting two cuts of 50 basis points, one in August and one in October,” Filipa said by telephone from Rio de Janeiro. “The results from today slightly decrease the expectations for the 50-point adjustment in the October meeting.”
Bolstered by government cuts in the IPI tax on industrialized goods, furniture and appliance sales increased 5.3 percent in June, compared with a 3.3 percent decline in May, the statistics agency said.
Brazilian consumers, whose spending has powered growth, have been supported by a strong labor market, even as job creation slows. Unemployment in May was 5.8 percent, a record low for the month.
The consumer default rate “has reached its maximum and is starting to fall, and that will open space for consumers to buy goods,” Filipa said. “The perspective is for a recovery of the economy that could have a positive impact on consumer confidence.”
The broader retail index, which includes the sale of cars and construction materials, rose 6.1 percent from May and 12.3 percent from the previous year, the statistics agency said.
Sales of vehicles and auto parts increased 16.4 percent in June from May. Higher vehicle sales also reflect the government tax cuts, said Rafael Leao, economist at Austin Rating.
“Consumers don’t know how long the IPI cuts will continue,” Leao said by telephone from Sao Paulo. “They could be extended” beyond Aug. 31, when they are scheduled to expire, he said.
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