Itaú BBA - Retail sales surprise to the downside in Brazil

Latam Talking Points

< Voltar

Retail sales surprise to the downside in Brazil

Janeiro 16, 2020

In our view, economic activity remains in a gradual acceleration trend, but with some weaker signs at the margin in November and December

Talk of the Day


In November, core retail sales advanced 0.6% mom/sa, below market expectations (+1.2%) and in line with our forecast (+0.6%), while the broad indicator receded 0.5% mom/sa, below both market expectations and our forecast (mkt: +0.4%; Itaú: 0.0%). On an annual basis, the indicators increased 2.9% and 3.8%, respectively. The breakdown shows that 5 out of 10 categories posted gains in the month. Looking ahead, our preliminary forecast for December’s retail sales is a slight increase in the core indicator (+0.2% mom/sa) and a minor decline in broad retail sales (-0.3%). In our view, economic activity remains in a gradual acceleration trend, but with some weaker signs at the margin in November and December. Our preliminary forecast for 4Q19 GDP remains at +0.5% qoq/sa. ** Full story here.

Day Ahead: On economic activity, BCB’s monthly activity index (IBC-Br) for November will be released at 9:00 AM (SP time). Our forecast points to a 0.3% mom/sa decrease, leading the year-over-year growth rate to 0.5%.


The CPI increased 3.7% mom in December, after a 4.3% increase in November, below market consensus of 4.05%. With this result, annual inflation ended 2019 at 53.8%, marking its highest level in 28 years. Core item prices rose by 3.7% mom, led by food items, in particular meat, leading the annual core inflation to 56.7% in December, from 55.2% in the previous month. Looking ahead, we expect inflation to remain high in January, around 3.5% mom. In spite of the public-services freeze and a stable foreign exchange rate of 60 pesos to the dollar, the end of the VAT reduction on certain food items will pressure the CPI basket. Our forecast for 2020 stands at 43%. ** Full story here.


According to the central bank’s monthly analyst survey, receding inflation and modest growth would prolong the on-hold period for rates, but some additional tightening is now seen at the end of the forecast horizon. Inflation expectations for 2020 remained broadly unchanged at 3.40% (Itaú: 3.3%). Additionally, expectations for 2021 inched up to 3.25% from 3.22% in December. The median of the 2-year horizon inflation expectation was also 3.25%, close to the central bank’s target. Core inflation (excluding food prices) expectations moved up, from 3.25% to 3.35% for 2020, while analysts see slightly higher core inflation by the end of 2021 (at 3.17% from 3.10%, previously). On the monetary policy front, analysts expect a 25bp rate hike to 4.50% in October 2020 (previously in January 2021), while a second rate increase to 4.75% is now expected 12 months later (in December, rates were seen unchanged at 4.50%). The quarterly activity survey shows unchanged growth expectations of 3.2% for 2019 and 3.3% for 2020 (Itaú: 3.3% and 3.1%, respectively). Given a very gradual narrowing of the output gap and the expectation that inflationary shocks would pass, we expect the Central Bank to remain on hold for the time being. 


The monthly GDP proxy increased 1.9% yoy in November (from 2.1% in October), below both our forecast and market expectations of 2.4%. The breakdown shows that the non-natural resources sector decelerated to 1.6% yoy in November (from 2.0% in October), dragged mainly by a sharp contraction in construction output (3.7% yoy in November, from +1.2% in October), consistent with a weak public capital expenditure execution. Moreover, the natural resources sector decelerated to 2.0% yoy in November (from 2.4% in October), as fishing output contracted 13.8% yoy in November (from -0.7%) and mining output recovered to  4.0% (from 0.7%). In all, we now expect GDP growth for 2019 at 2.2% (from 2.3%). A growth improvement next year is likely, amid lower tensions between China and the U.S. and more supportive fiscal and monetary policies. ** Full story here.

< Voltar