Itaú BBA - Retail sales still indicate weak activity recovery in Brazil

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Retail sales still indicate weak activity recovery in Brazil

April 10, 2019

We forecast gains of 0.3% in core retail sales and 0.9% in broad retail sales for March.

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February’s core retail sales remained flat, while the broad index receded in the period. The core retail index came in stable, above our call (-0.7% mom/sa) and the market’s (-0.4% mom/sa). Year-over-year, the index increased 3.9%, from 1.9% 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 – declined 0.8% mom/sa, in line with our call (-1.0%), but below market’s expectations (-0.3%). Compared to February 2018, broad sales growth rate accelerated to 7.7%, from 3.4% in the previous month. Looking at the broad index breakdown, 6 out of 10 indicators declined in the month. All in all, the retail sales print reinforces the disappointing performance of economic activity in the first quarter of year, in consonance with other indicators of the period. Coincident indicators released so far point to seasonally-adjusted monthly increases in retail sales indicators in March. We forecast gains of 0.3% in core retail sales and 0.9% in broad retail sales.
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Day Ahead: March’s IPCA inflation will be released at 9:00 AM. We forecast a 0.63% monthly increase, leading the 12-month reading to 4.45% (from 3.89% in February, an increase mainly driven by base effects and food and fuel prices). 


Inflation stood at 0.39% in March, slightly above our forecast of 0.38% and marginally below market expectations of 0.40%. March’s CPI was pressured by an increase in energy prices (1.78% mom in March, from 0.29% a year ago), associated to an increase in gasoline prices, while non-core food inflation decelerated to -0.67% (from 0.38% a year ago). In turn, on a monthly basis, core inflation remained practically unchanged compared to a year ago (0.34%, from 0.33%), with core inflation services decelerating (0.35%, from 0.40% a year ago), while core inflation tradables accelerated (0.34%, from 0.25% a year ago). On an annual basis, headline inflation accelerated slightly to 4.00% yoy in March (from 3.94% in February), pressured by non-core energy inflation, while core inflation remained practically unchanged. At the margin, core inflation slowed down at a faster pace than headline inflation. Using seasonally adjusted three-month annualized figures, headline inflation decelerated to 0.21% rate in March (from 0.37% in February), while core index decelerated at a faster pace (2.68%, from 3.02% in February). 

We expect inflation to end 2019 at 3.6%. Although inflation accelerated slightly in March on an annual basis, actual average 1Q19 year-over-year headline CPI is in line with Banxico’s forecast path of 4.1%. However, the lingering uncertainties surrounding Mexico’s economy continue to constitute upside risks for inflation.
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Car sales dropped in 1Q19. The National Automotive Association of Chile (ANAC) reported that car sales decreased 9.5% year over year in March, continuing the trend registered in February (-5.1%). Hence, in the first quarter of the year, sales fell 3.5%, down from the 6.3% expansion in 4Q18. At the margin, car sales dropped 2.8% (SA) from February, resulting in an 11.8% qoq/saar fall. The moderation of car sales in 1Q19, along with weak retail sales indicators, could be a sign of weakening consumption. However, still low inflation, an expansionary monetary policy and a broadly stable exchange rates are likely to support consumption ahead. We expect growth of 3.2% this year (4% last year). 


Core inflation remained stable and low in March. According to the Central Bank, the average of core inflation measures came in at 2.82% in March, similar to February, which was the lowest level since October 2014. Overall, tradable good inflation (excluding food and regulated items) was broadly stable below 1%, remaining the key drag to headline inflation (3.21% in March). Non-tradable inflation (also excluding food and regulated prices) continues to edge closer to the central bank’s target, reaching 3.29%. Meanwhile, the regulated component pulled-up inflation in the month, gaining 6.42% yoy (5.72% previously). We expect inflation to end the year at the central bank’s 3.0% target (3.18% in 2018) as the negative output gap and controlled inflation expectations would keep inflation at bay. With sluggish activity and subdued inflation pressures, we expect the central bank to keep the policy rate stable at 4.25% for the time being (next decision meeting: April 26).

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