UPDATE 2-Brazil retail surprises with July surge at supermarkets

Thu Sep 12, 2013 10:22am EDT

* 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.
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