UPDATE 2-Brazil retail surprises with July surge at supermarkets
* Sales volumes jump 1.9 pct vs forecast 0.2 pct rise * Rare drop in food prices leads supermarket rebound By Silvio Cascione and Brad Haynes SAO PAULO, Sept 12 (Reuters) - Brazilian retail sales jumped more than expected in July as lower food prices offered relief for tight family budgets, bolstering hopes that the economy can avoid a quarterly drop. Sales volumes in Brazil rose a seasonally adjusted 1.9 percent in July from June, the government statistics agency IBGE said on Thursday, well above a median forecast of a 0.2 percent rise. Evidence of recovering demand boosted hopes for a fragile recovery in Latin America's largest economy, after household spending lost steam in the first half of the year and factory output swung between growth and contraction. Economists expected Brazil's economy would stumble in the second half of the year after short-term stimulus triggered an unexpected surge from April to June. "We originally expected negative growth in the third quarter, but ... depending on August data, it could be that we have a nearly stable third quarter," Thais Marzola Zara, chief economist at Rosenberg & Associados said, after seeing the strong retail numbers. Food and drink prices slipped in July for the first time in at least 18 months, boosting supermarket sales that had fallen four times since February as higher inflation spooked consumers. Brazilians' average wages, adjusted for consumer prices, have fallen five months in a row, while inflation accelerated to a nearly two-year high. As a result, consumer confidence fell this year to its lowest since the global recession in 2009. The retail rebound in July was the strongest monthly rise since January 2012, but economists were hesitant to predict a sustained recovery after a weak first half of the year. "I'm still not convinced we have a recovery," Leandro Padulla, an economist at MCM Consultores said, citing the importance of a new program of tax breaks to support home appliance sales. "It's more of the same, driven by government incentives. This is not a consistent return of demand," Padulla said. Retail sales jumped 6.0 percent from a year earlier , the IBGE added, more than the 3.15 percent median estimate in the Reuters poll. Yields on Brazilian interest rate futures rose across the board in Thursday trading, as the evidence of more robust consumer demand raised expectations of a longer cycle of interest rate increases from the central bank to control inflation. "Lower inflation is allowing consumers to have more purchasing power and credit is improving a little, which is reflected in the very good retail sales," Finance Minister Guido Mantega told journalists in Brasilia.