High food prices push Brazilian retail sales to seven-month low

High food prices retail sales
Photo: Valter Campanato/ABr

Core retail sales, a barometer for consumer spending, dropped by 1.4 percent in June. This is below expectations and the worst month-on-month performance since December of last year. Markets had expected a 1 percent drop, according to financial data company Refinitiv.

Year-to-date, retail has grown 1.4 percent — but has posted negative results over the past 12 months.

The dip was registered across seven of the eight segments surveyed — notably clothing and footwear, food and beverage, and tobacco. The cost of these products soared above overall inflation. 

The exception was tobacco, which nevertheless saw a rapid acceleration of inflation — 12-month inflation jumped from 3.54 to 7.78 percent between May and June.

Food prices have climbed as a whole in recent months, with basic items such as milk cartons becoming over 10 percent more expensive in the past month alone.

The only segment to post monthly growth in June was pharmaceutical items. But the increase was mostly due to higher medicine prices, authorized by the government in April, and not because consumption actually increased.

“This is a type of product that, most of the time, one cannot replace. This increases the expenditure of a family that may have to spend on this activity and reduce consumption in others,” said Cristiano Santos, a manager at the Brazilian Institute of Geography and Statistics.

Expanded retail sales — which include vehicles and construction material — decreased by 2.3 percent in June, as the cost for these items became more prohibitive to millions of Brazilian households. 

While inflation started to show signs of improvement in July, with the first monthly deflation in over two years, entry-level wages are still low, down in 128 of the 140 professions recently analyzed by the Labor Ministry. 

This scenario, along with double-digit interest rates, harms household consumption and worsens the country’s indebtedness scenario, already at record levels.