July Retail Sector Gains: An Analysis of Income and Credit Dynamics

In July, the retail sector in Brazil showed positive signs as the Stone Retail Index (IVS) increased by 0.9% compared to June. Although the recovery was moderate, it marks a second consecutive rise for the index, suggesting possible strengthening of economic activity. However, a closer look at the data reveals a complex structure: four out of eight analyzed sectors showed positive growth, with highlights on those more linked to income such as pharmaceutical products (+2.5%), fuels and lubricants (+2.1%), supermarkets, food products, beverages, and tobacco (+1.6%). Interestingly, the building materials sector, which is typically more sensitive to credit, also showed a moderate increase of 1%. Conversely, four other sectors experienced significant declines: textiles, clothing, and footwear (-4.1%), furniture and appliances (-2.2%), books, newspapers, magazines, and paper products (-1.1%), and household items (-0.6%). This division highlights the persistent dichotomy between retail sectors dependent on income and those more tied to credit. Guilherme Dias, a researcher at Stone, notes that 'it is too early' to declare a less cloudy scenario as two consecutive months of growth do not provide enough grounds for conclusions. However, he points out that the annual result of the IVS remains robust with a 4.7% increase compared to July last year, although it lost some momentum between June and July. 'I would not be surprised if August performs negatively,' Dias says, highlighting the delicate balance between rising income and high real interest rates which limit more indebted consumers.