Brazil’s June Retail Sales Rise More Than Expected

By Joshua Goodman and Helder Marinho
Aug. 13 (Bloomberg) -- Brazil’s retail sales rose more than expected in June from the previous month, reinforcing analyst expectations that surging domestic demand is lifting Latin America’s largest economy from its first recession since 2003.
Retail sales rose 1.7 percent from the previous month, the national statistics agency said today, beating the forecast for a 1.2 percent increase in a Bloomberg survey of 23 economists. Sales grew 5.6 percent from a year ago, almost twice the revised 2.9 percent pace in May. Analysts had forecast a 6 percent gain, the median of a survey of 29 economists.
Policy makers, in the minutes to their July 22 meeting at which they halved the pace of interest rate cuts, said the current record low Selic rate of 8.75 percent was “consistent” with a non-inflationary economic recovery, a signal they may halt after five straight cuts this year.
“The numbers reinforce the central bank’s thesis, which is one of caution,” Roberto Padovani, chief strategist for Banco WestLB in Sao Paulo, said in a telephone interview. “A still- strong economy is being sustained by domestic demand that is compensating for the slowdown in exports and investment.”
Padovani said the central bank’s next move would be to raise the benchmark rate sometime in the middle of next year. Analysts are forecasting that the bank will raise the so-called Selic to 9.25 percent next year, according to a central bank survey of 100 economists published Aug. 10.
Rates
Still, with inflation at the 4.5 percent midpoint of the central bank’s target range, and expected to fall further next year, President Luiz Inacio Lula da Silva is pushing for another cut.
“We have the lowest level of interest rates in our history,” Lula said at a conference yesterday in Brasilia. “It’s desirable and possible to cut further”
The real strengthened as much as 1.1 percent before paring gains to trade at 1.8333 per dollar at 10:50 a.m. New York time, a 0.3 percent gain, from 1.8388 yesterday.
Former central bank President Gustavo Franco said in an interview last week that he would have cut further during the global crisis and that pressure to resume slashing rates should intensify as inflation slows.
Central bank President Henrique Meirelles has been more moderate, saying this week that policy makers have “maneuvering room” should the global crisis worsen.
Recovery
June’s retail sales grew by the fastest monthly pace since a 1.9 percent increase in February. A 15.6 percent increase in the sale of computer equipment led all categories.
A broader index, including automobile and construction materials, rose 10.2 percent from the year-ago period, the biggest gain since September, helped by government tax breaks to stimulate spending. On a monthly basis, sales rose 6.5 percent, the most since the broader index was introduced in 2007.
Claudio Felisoni, head of the management institute at the University of Sao Paulo , said in an interview with Bloomberg Television in Sao Paulo that today’s data “signal a very auspicious scenario” for the retail sector in the coming months.
Franco said six straight months of expansion in industrial output was a “sure sign” that Brazil was in a V-shaped economic recovery that may lead to positive growth this year.
Analysts expect a slower recovery, forecasting gross domestic product will shrink 0.35 percent this year before rebounding 3.6 percent in 2010, according to the central bank survey.
Unemployment fell for the third straight month in June, to 8.1 percent from 9 percent in March, while companies added jobs for the fifth month, cementing expectations that the economic recovery gained pace in the second quarter.
To contact the reporter on this story: Joshua Goodman in Rio de Janeiro at Jgoodman19@bloomberg.net; Helder Marinho in Rio de Janeiro hmarinho@bloomberg.net;