Brazilian May retail sales much better than expected

Brazilian retail posted positive results for the fifth consecutive month, with sales rising 1.2 percent in May over April, driven by the food segment, according to fresh data from the Brazilian Institute of Geography and Statistics (IBGE). 

The month’s result also came in well above market expectations, which pointed to a monthly drop of 0.9 percent, according to analysts interviewed by LSEG. Sector sales grew 5.6 percent in the year and 3.4 percent in the last 12 months. In comparison with the same month in 2023, growth was 8.1 percent.

The result is due not only to the increase in purchases of food and beverages in supermarkets and grocery stores (+0.7 percent) — a segment that accounts for more than half of retail sales — but also pharmaceutical items, which accumulated an increase of 12.6 percent in the year, and personal and household items (+1.6 percent). 

According to IBGE research manager Cristiano Santos, the increase in the granting of credit to individuals and the growth in the wage bill, supported by the consistent rise in the number of employed people in the country, are the main factors leading the sector to post better results than in 2023.

May’s result was also positive (+0.8 percent) in the so-called “extended retail” field, which includes sales of motor vehicles, construction materials, and wholesale food products — increases were driven almost entirely by the latter segment.

As we showed in May, getting the sector back to consistent growth depends on monetary easing, controlled inflation, and a resilient job market. 

So far, these three factors have pointed in the right direction, prompting entities such as the National Confederation of Commerce (CNC) to review their 2024 sector revenue growth projections upward, from 1.1 percent at the beginning of the year to 2.2 percent two months ago — above the 1.7 percent growth recorded in 2023. The entity is expected to review its forecast upward again later today.

The IBGE numbers, however, do not show consistent growth in segments other than non-durable goods (food and pharmaceutical items), which managed to sustain more or less continuous sales growth even after the post-pandemic rise in inflation. They felt a much quicker impact from the fall in inflation and an increase in the population’s purchasing power.

On the other hand, retailers of durable and semi-durable goods went from heaven to hell. At the beginning of the crisis, they experienced euphoria, with people spending their savings on beautifying their homes, buying new clothes, or purchasing equipment to work remotely. However, these same companies soon felt the effects of inflation on families’ budgets, with high levels of debt that persisted for much longer than in previous cycles due to high borrowing costs. 

This scenario is changing slowly. Comparing May this year with the same month of 2023, for example, IBGE data shows only a 2.1 percent increase in sales of home appliances and furniture. 

If entities in the sector were expecting a full recovery by the end of the year, the new pace of the interest rate policy could be an obstacle. In the minutes of its last meeting, the Central Bank’s Monetary Policy Committee signaled that new cuts in the benchmark interest rate (currently at 10.5 percent) are not in sight. 

Lower interest rates are instrumental in facilitating the rollover of debts and increasing the retailers’ capacity to invest in expansion, technology, and inventories.

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