July 8, 2015 / 8:10 PM / 4 years ago

Brazil tax change spurs cosmetics inflation, emptier salons

SAO PAULO, July 8 (Reuters) - Higher taxes in Brazil will drive up the cost of perfume, makeup and shaving cream 20 percent or more this month, cosmetics distributors and industry groups warn, stoking inflation and weighing on the world’s No. 3 beauty market.

A new policy in May levying the industrial IPI tax on cosmetics wholesalers and producers is coming into full effect this month, lifting retail prices as much as 12 percentage points above inflation, according to trade association Abihpec.

Brazil’s benchmark consumer price index has already climbed nearly 9 percent in the past 12 months to an 11-year high.

Stores and wholesalers have been stocking up on cosmetics in recent months ahead of the price increases, according to Abihpec President João Carlos Basílio, who warned that sales could plunge in coming months. His group forecasts a 17 percent drop in sales of hygiene and beauty products this year.

That would be a serious setback for the beauty industry in Brazil, where a tropical climate, penchant for personal care and growing middle class have created the world’s third-largest market behind the United States and China, according to business research firm Euromonitor International.

Sales of hygiene and beauty products rose 11 percent to 101.7 billion reais ($32 billion) in 2014 despite stagnant economic growth, according to Abihpec.

Now the price increases threaten to rattle a market on the defensive because of rising unemployment and a likely recession.

“To save money, clients are staying home, trying not to eat out and having their hair, feet and hands done less,” said Walter Filho, a partner at Rio de Janeiro salon chain Walter’s.

Hypermarcas SA, one of Brazil’s biggest consumer goods companies, which makes nail polish, shaving cream and skin lotions, has already said it would raise consumer prices in July after an average 7 percent increase in April.

Rival cosmetics maker Natura SA has been more gradual, announcing a roughly 2.5 percent price increase on certain products in June following an average 3.7 percent increase in February.

Natura has not announced further price changes for this year and its chief executive, Roberto Lima, said in April that the company would be careful “not to go overboard.”

Foreign brands are frontloading the price increases, according to Igor Bacchi, the commercial director of Brazilian cosmetics distributor BIM, who said L’Oreal SA had raised prices 15 percent to 20 percent.

The French cosmetics group declined to comment. ($1 = 3.1830 Brazilian reais) (Writing by Brad Haynes and Steve Orlofsky)

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