(Adds quarterly data, reference to retail and industry, background)
By Silvio Cascione
BRASILIA, May 16 (Reuters) - Economic activity in Brazil dropped slightly in March on weaker industrial output and retail sales, central bank data showed on Friday, capping a frustrating first quarter for Latin America's largest economy.
The Brazilian central bank's IBC-Br economic activity index dropped 0.11 percent in March from February in seasonally adjusted terms, the bank said on Friday, in line with expectations in a Reuters poll.
The index, a rough proxy for gross domestic product, dropped a non-seasonally adjusted 0.09 percent over the same month a year ago. It pointed to 0.3 percent growth in the first quarter from the end of last year.
March's surprise drop in retail sales dragged activity down as rising inflation and tighter credit ate into consumers' pockets. Industrial output also fell in that month as factories sought to cut back on unwanted inventories.
Brazil's economy has struggled with weak growth and high inflation since 2011 despite countless attempts by the government of President Dilma Rousseff to boost activity through stimulus measures. The country's economy grew just 2.3 percent last year and is expected to slow further in 2014, according to private estimates.
The IBC-Br index, a gauge of activity in the farming, industrial and services sectors, has proven to be an imperfect barometer of official GDP data compiled by statistics agency IBGE, which provides a broader reading of economic activity. (Reporting by Silvio Cascione Editing by W Simon and Chizu Nomiyama)