Brazil's Retail Sales Growth Accelerated in July (Update3)

By Joshua Goodman and Andre Soliani
Sept. 16 (Bloomberg) -- Brazil's retail sales accelerated in July, buoying expectations that sustained domestic demand will allow Latin America's largest economy to weather slower global growth.
Retail sales rose 11 percent in July, up from a 8.2 percent gain in June, the slowest pace in 14 months, the national statistics agency said. The gain was more than the 10.7 percent median forecast in a Bloomberg survey of 21 economists.
Four central bank interest rate increases since April have failed to rein in Brazilian domestic demand that has helped push annual inflation up above the mid-point of the central bank's target range. The prospect of sustained consumer spending against the backdrop of slower growth overseas suggests that the central bank has room to push borrowing costs higher by year-end.
``Today's retail report confirms that demand is strong,'' said Sergio Goldman, head of Brazilian research for Bulltick Capital Markets in Sao Paulo.
The central bank last week raised rates to 13.75 percent from 13 percent, in a bid to cool demand and slow inflation. Policy makers are expected to raise the so-called Selic rate to 14.75 percent by year-end, according to a Sept 12 central bank survey of leading economists. The bank targets annual inflation of 4.5 percent plus or minus 2 percentage points.
Retail sales have risen 10 percent or more in five of the first seven months of 2008.
`Fundamentals'
As for much of the year, sales growth in July was led by home appliances, up 19.6 percent from a year ago, and computer and office equipment, which expanded by 20.6 percent.
Slower global economic growth and credit market turmoil in the U.S. will weigh on Brazil's economy, though government policies will also help insulate Latin America's biggest economy, said Roberto Padovani, chief economist at WestLB in Sao Paulo
The ``economy will suffer the impact of a U.S. crisis, but not as much as in the past as domestic fundamentals are strong after 15 years of responsible economic policy,'' said Padovani.
The $1.3 trillion economy expanded 6.1 percent in the second quarter, beating all forecasts in a Bloomberg survey of 36 economists whose median estimate was 5.5 percent.
To be sure, demand has shown signs of easing in the wake of rising rates. Monthly retail sales fell 0.2 percent in July from June, the first drop in five months. When cars and construction materials are added, retail sales rose by 1 percent from June.
Zeina Latif, chief economist for ING Bank NV in Sao Paulo, said slower growth of car sales in August may be the first sign that higher interest rates are starting to cool demand.
Vehicle sales rose 4 percent in August from a year ago, the slowest pace in almost two year, after car loan rates jumped.
``August may be the inflection point, but we still need to wait for bank loan numbers to confirm the slowdown,'' she said.
Departure
Finance Minister Guido Mantega yesterday said turmoil in U.S. credit markets will slow Brazil's economic growth to about 4.5 percent in 2009 from 5-to-5.5 percent this year. The crisis won't stop Brazil from expanding, he said yesterday in Sao Paulo.
``In other circumstances, Brazil would be on its knees right now,'' Mantega told reporters yesterday in Sao Paulo.
Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil's biggest food retailer, said August sales at stores open at least a year climbed for a fourth month, rising 17 percent from the year-earlier period.
Net sales at all stores rose 29 percent to 1.5 billion reais ($835 million), led by electronic goods and textile goods, Grupo Pao de Acucar said today in a regulatory filing.