Itaú BBA - Retail sales above expectations in Brazil

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Retail sales above expectations in Brazil

March 15, 2019

Year-over-year, the index increased 1.9%, from 0.6% in the previous month

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Our LatAm Macro Monthly report will hit your mailboxes today, featuring scenarios for Brazil, Mexico, Argentina, Chile, Colombia, Peru, the global economy and commodities.



January’s core retail sales increased 0.4% mom/sa, in line with our call and above market expectations (0.1%), partially offsetting the 2.1% monthly drop in December. Year-over-year, the index increased 1.9%, from 0.6% in the previous month. The broad index – which includes vehicles and construction material, and tends to be less predictable, but more important for GDP growth – increased 1.0% mom/sa, above our call (0.4%) and the market’s (0.2%). Compared to January 2018, broad sales growth rate accelerated to 3.5% (from 1.7% in the previous month). 

Additionally, the Serasa Experian Index for Retail Activity fell 2.4% in February (our seasonal adjustment). In yoy terms, the index slowed to -0.7% (from -0.6% in the previous month). The breakdown shows monthly declines in 4 out of 6 categories, led by furniture & household appliances (-2.2%). Combining with other indicators, our preliminary forecasts for February’s core retail sales declined to -0.3% mom/sa (from 0.3%);  for the broad segment, our forecast dropped to -0.4% mom/sa (from 0.2%)

Day Ahead: At 9:00 AM, January’s service sector volume will be released, for which we forecast a 0.2% mom growth, leading to a 2.4% yoy increase.


February’s inflation rose 3.8% mom, above the 3.6% market consensus forecast. Consumer prices accelerated for the second consecutive month, driven by food and regulated prices. The annualized three-month measure rose to 45.1% (from 40.4% in January), while the annual reading hit 51.6% (from 49.3% in January), marking a new record high. Core inflation came in at 3.9% mom (up from 3.0% in January). At the margin, the core reading is running at 45.9% annualized (last three months), up from 42.6% in January.

We revised our forecasts for inflation this year to 35%, from 30% in our previous scenario. We also expect higher interest rates by December, at 37% instead of 32%. Further adjustments in regulated prices as well as the depreciation of the ARS against the USD are likely to keep inflation high in March. Price-tracker consulting firm Elypsis estimates a 3.5% mom increase in consumer prices for March, due to the announced price hikes for electricity, public transportation and gasoline. The inflationary outlook has deteriorated amid the upcoming wage negotiations, making disinflation even more challenging. As a consequence, the central bank tightened its monetary policy stance, which in turn led to an increase in the Leliq rate to over 60% (from 43% in February). 
** Full story here.

Day Ahead: The treasury will publish the federal fiscal accounts for February 2019. We estimated that the 12-month rolling primary deficit as of January totaled 2.6% of GDP, down from the 2.7% in December 2018.


Activity at the start of 2019 came in with mixed results. Retail sales slowed more than anticipated, while the headline industrial production surprised to the upside (although weakness at the margin persisted). Overall, with activity indicators continuing to point at GDP growth below potential and low inflationary pressures, stable rates in a mildly expansionary territory is likely to persist for some time. Total retail sales increased 3.0% yoy (7.1% previously), below the market consensus of 4.3% and our 4.0% forecast. Despite the annual slowdown, retail sales growth continued to improve at the margin. Manufacturing increased 3.0% yoy (-0.8% previously) in January, exceeding the 2.6% market consensus and our 1.5% call. We expect activity to improve this year, with growth of 3.3% (2.7% last year) aided by a still-expansionary monetary policy, recovering consumer and business sentiment and growing signs of an investment improvement (as capital goods imports pick up).
** Full story


Macro Scenario: We see GDP growth of 3.2% this year (4.0% in 2018). Activity in 1H19 looks set to underwhelm. Nevertheless, the recent recovery of copper prices will likely support business confidence and lead to still vigorous investment throughout the year. Inflation will likely remain low this year. Although we still see some pickup as the year unfolds (due to some normalization of tradable inflation and a narrower output gap), the results of the methodological changes have led us to revise our year-end call to 2.6% (3.0% previously). Given our new forecasts for inflation, in an environment of weak global growth and more benign financial conditions for emerging markets, we now see only one additional 25-bp rate hike this year (to 3.25%), and three hikes next year (bringing the policy rate to 4.0%).
** Full story


Macro Scenario: We revised our GDP forecast for 2019 to 1.4% (from 1.7%). Uncertainty over the direction of domestic policy and remaining uncertainties about the approval of the USMCA by the U.S. Congress are weighing on investment, while deceleration in the U.S. economy is limiting exports. In this context, the labor market is weakening, curbing consumption growth. We now expect Banxico to deliver two 25-bp rate cuts in the last quarter of 2019 (reaching a rate of 7.75% by year-end) and four 25-bp cuts in 2020. Inflation fell within the range around the target in February. We believe that with inflation falling and growth below potential, the central bank will have room to start a gradual normalization cycle, as long as uncertainty abates (and so do risks for the currency and inflation).
** Full story


Day Ahead: The statistics institute (INEI) will announce January’s GDP proxy, for which we estimate a 2.3% yoy increase, from 4.7% in December.

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