May 15, 2013 / 1:15 PM / in 5 years

UPDATE 2-Brazil retail starts 2013 with worst quarter since 2008

* Retail index suffers back-to-back March, Feb decline
    * Food inflation, weaker wage growth pinch family budgets
    * Retailers cut payroll, operating costs to protect profit

    By Brad Haynes and Silvio Cascione
    SAO PAULO, May 15 (Reuters) - Brazilian retail sales fell in
the first quarter for the first time since 2008, as higher
inflation and weaker wage growth eroded the consumer confidence
that has kept Latin America's largest economy growing.
    Weak demand may add to frustrations for President Dilma
Rousseff, whose government slashed interest rates to ignite an
economic rebound only to find a spike in consumer prices has
pinched families' spending. 
    Sales volumes in Brazil slipped a seasonally adjusted 0.1
percent in March from February after a downwardly
revised 0.5 percent drop in February, statistics agency IBGE
said on Wednesday. As a result the retail index fell 0.2 percent
in the first three months of the year from the end of 2012 - its
weakest quarter since a 0.5 percent drop at the end of 2008.
    Softening consumer demand is dimming what had been one of
the few bright spots in a sluggish Brazilian economy.
    A spike in food prices dragged supermarket sales sharply
lower, highlighting tighter family budgets despite record-low
unemployment and borrowing costs. Free-spending consumers have
helped keep Brazil out of recession in recent years amid weak
investment and industrial production. 
    "More and more, the importance of consumption is going to
decline. It's going to stop being the driver of the economy. We
have to count more on a recovery of investments," said economist
Camila Monteiro at BNY Mellon Arx in Rio de Janeiro,
highlighting the sharp contraction of demand at supermarkets,
which make up about half of the IBGE retail index.
    The 2.1 percent drop in supermarket and other food sales in
March was the worst monthly decline in the segment since
February 2008. Food costs in the benchmark IPCA consumer price
index rose 14 percent in the 12 months to March.
    As inflation ate into Brazilians' paychecks over the past
year, families have dialed back their once-soaring optimism. 
Measures of consumer confidence plunged to a
three-year low this year from an all-time high last year,
according to the Getulio Vargas Foundation, an economics think
    Retailers and consumer goods companies have responded to the
slowdown by cutting payroll and production costs in order to
maintain profitability. 
    Grupo Pão de Açúcar SA , Brazil's biggest
retailer, thinned its executive ranks to offset pressure on its
supermarkets division. Hypermarcas SA combined
assembly lines to boost profit margins despite the softening
demand for its medicine and hygiene products. 
    Convinced they can outperform a cooling market, Brazil's
biggest retailers are also betting on expansions into less
competitive markets to keep revenue growing. 
    But investors are uncertain how much more fat retailers can
burn if sales fail to pick up this year. An index of
consumer-focused companies on the Sao Paulo stock
exchange is nearly flat this year after a 40 percent jump last
    Retail sales had been expected to fall 0.3 percent,
according to the median estimate of 33 economists polled by
Reuters. Forecasts ranged from a declined of 1.5 percent to a
rise of 1.2 percent. Sales growth in February from January was
revised to a 0.5 percent drop, from a previously reported 0.4
percent decline.
    March's retail sales rose 4.5 percent from the year-earlier
period, the IBGE added, more than the 3.8 percent
median estimate in the Reuters poll. Forecasts ranged from a
gain of 2.2 percent to 7.0 percent.Mar/Feb     Mar/Mar12
 Retail sales index                          -0.1         4.5
   Fuel and lubricants                        2.4         3.6
   Supermarkets, food, beverages and         -2.1         4.0
      Supermarkets                           -1.8         4.3
   Textiles, apparel and footwear             3.9         5.9
   Furniture and household appliances         0.7        -0.8
   Pharmaceutical, medical, ortopedic        -1.9         4.7
 materials, toiletries, cosmetics                  
   Office, computer and communication        -5.2        -2.2
 material and equipment                            
   Books, newspapers, magazines and          -2.9         3.9
   Other articles of personal and             0.7        14.9
 household use                                     
 Broad retail sales index                     0.2         3.0
   Vehicles and motorcycles, parts            1.9         1.2
 and pieces                                        
   Construction material                      0.7        -0.1
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