February 19, 2013 / 12:47 PM / in 5 years

UPDATE 2-Brazil retail sales drop unexpectedly in December

* Sales index down 0.5 pct from Nov vs +0.8 pct forecast
    * Inflation erodes purchasing power despite low unemployment
    * Pão de Açúcar results late Tues to reflect holiday letdown

    By Brad Haynes and Silvio Cascione
    SAO PAULO, Feb 19 (Reuters) - Brazilian retail sales fell
unexpectedly in December, as rising inflation began to erode the
consumer spending that kept Latin America's largest economy out
of recession for the past year.
    Retail sales volumes in Brazil fell 0.5 percent in December
from November on a seasonally adjusted basis, the
government statistics agency IBGE said on Tuesday. Retail sales
had been expected to rise 0.8 percent, according to the median
estimate of 27 economists polled by Reuters, all of whom
predicted a monthly increase.
    The weak retail data raises a red flag in an economy that
probably grew about 1 percent last year despite a raft of
government stimulus. Strong consumer spending has been one of
Brazil's few consistent engines for growth as manufacturing
stagnates due to weak global demand and soaring labor costs.
    Falling unemployment and interest rates have unleashed
unprecedented demand from Brazil's growing middle class in
recent years, encouraged by tax breaks and credit incentives.
    But inflation finished last year on the upswing and
accelerated in January to its fastest pace in eight years,
eroding families' purchasing power. Rising prices led to a rare
drop in real wages in December, despite record-low unemployment.
    "Higher inflation should cause a slowdown in retail growth
this year," said Luciano Rostagno, chief strategist of Banco
WestLB in Brazil. "I think these numbers show the exhaustion of
a growth model based on consumption. The government will have to
find other ways to stimulate the economy, such as investments."
    Economists had expected a solid Christmas season to lay the
groundwork for a gradual economic recovery in 2013. But initial
returns from some retailers have showed disappointing holiday
sales, as families struggled with rising debt loads and higher
prices for household staples.
    Supermarket, food, beverage and tobacco purchases, which are
especially sensitive to inflation and make up the biggest share
of the IBGE retail index, fell 0.3 percent in the month. Sales
volumes expanded in just three of eight retail categories.
    Brazil's biggest retailer, Grupo Pão de Açúcar 
, said year-end sales at its food and appliance stores
open for at least a year rose at the slowest pace since the
first quarter of 2009. 
    Pão de Açúcar is set to report full fourth-quarter financial
results after markets close on Tuesday.  
    December's retail sales climbed 5.0 percent from a year
earlier, the IBGE added, less than the 7.35 percent
median estimate in the Reuters poll. Forecasts ranged from a
gain of 6.0 percent to 9.6 percent.
    Sales volumes grew 8.4 percent in 2012 from the year before.

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