Oct retail sales growth slows in Chile's Santiago

By Pav Jordan

SANTIAGO, Nov 26 (Reuters) - Chilean retail sales in the Santiago metropolitan area rose in October for the second month in a row, but the outlook for the year is for lower growth than for the past two years as inflation pressures curb spending.

The National Chamber of Commerce said retail sales for the nation's capital, home to more than a third of Chile's population, rose 1.0 percent in October compared to the same month a year ago, showing weak growth following a third quarter decline.

Retail sales grew 1.6 percent in September, but were off 0.2 percent for the third quarter.

The Chamber said retail sales growth for the Jan-Oct period was 1.9 percent, and estimated 2007 growth would come in at between 2.0 percent and 2.5 percent.

"What you are seeing is less domestic demand, less consumer spending amid a drop in available spending cash by consumers following rising inflation," said Lorena Pizarro, head of research at Chile's Alfa brokerage.

Chile's retail sales have been battered this year, particularly in the past four months, after a harsh southern hemisphere winter drove prices up for fresh fruit and vegetables.

In the past 12 months alone prices for the fresh produce have jumped 44 percent.

Supermarket sales were hit especially hard, down 2.4 percent in October compared to the same month last year, while sales of perishables were down 7.4 percent in the month.

"These low levels indicate that the weakening in commercial activity persists after the deceleration in the third quarter," the Chamber said in a statement.

Chile's economic growth, squeezed by an energy shortage, slowed sharply to an annual rate of 4.1 percent in the third quarter from 6.2 percent in the second quarter.

The 4.1 percent figure for the quarter was the lowest for the year, and came as domestic demand moderated and industrial output weakened. Several sectors contracted compared with a year earlier, but the most notable was utilities, which plummeted 20.2 percent.

The central bank expects the economy to grow between 5.75 percent and 6.25 percent in 2007, trending toward the lower end of that range, after 4 percent growth in 2006.

According to the chamber, Santiago-area retail sales rose 3.3 percent in 2006 and 5.2 percent in 2005. (Reporting by Pav Jordan, Editing by Chizu Nomiyama)