Brazil's Service Sector Loses Growth Momentum Amid Inflationary Pressures

Brazil's service sector expanded at the weakest pace in twenty months amid rising inflationary pressures caused by currency weakness, higher wage rates, and the reinstatement of the sales tax, survey results published by S&P Global showed on Friday.

The seasonally adjusted S&P Global Brazil Services Business Activity Index dropped to 50.7 in January from 51.0 in December.

However, a reading above 50.0 indicates expansion in the sector.

Further, this was the slowest rate of expansion in the current 20-month sequence of growth.Growth in new orders was also the weakest in twenty months. 

As a result of weak demand conditions, lack of pressure on capacity, restructuring efforts, and market uncertainty, payrolls fell for a second consecutive month. Nonetheless, the rate of job shedding was only modest overall.

On the price front, input price inflation quickened in January, led by real weakness, higher wage bills and the reinstatement of the ICMS sales tax. Similarly, selling price inflation accelerated to the highest since last August and outpaced its long-run average.

Still, service companies expected new business to rebound, investment to increase, inflation to remain contained, and borrowing costs to decrease in the next year.

Nevertheless, business confidence sentiment sank to its lowest level in a year-and-a-half amid political- and economic-related concerns.

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