Liquidity, Fund Inflows and Consumption

This in Bloomberg this morning:


Never have Gucci, Porsche, Jaguar, Prada and Tiffany been so in love with Brazil, home of the world's best-performing currency over the past three years.

The waiting list for Prada SpA's new spring-summer line of leather bags has swelled to 120 people at Dona Santa, a luxury goods store in the Brazilian coastal city of Recife. The most expensive bag in the collection costs $3,600, equal to about half the annual income of the average Brazilian household.

Porsche AG has sold more sports cars and SUVs in the South American country this year than it did in all of 2002 and 2003 combined. Grand Cru, the country's second-largest importer of premium wines, forecasts a doubling of sales this year.

The Brazilian real's three-year, 60 percent rally has pared the cost of imports, fueling a surge in luxury goods sales. That boom is part of a doubling of imports in the past three years that is curbing growth in Brazil's trade surplus and leaving the currency vulnerable to a decline in commodity exports.

The real has gained 9.9 percent this year to 1.9417 per dollar, buoyed by record exports of commodities such as iron ore, orange juice and soybeans and by foreign investment in the country's stock and bond markets.

The real's rally has buoyed the purchasing power of Brazilians, from the poorest to the richest. The average monthly household income in Brazil rose to 1,114 reais in May, or $574. That's double the $287 average three years earlier.

The highest-paid banker in Brazil today takes home $113,000 a month, up from $27,000 a month in 2004, according to Sao Paulo-based Grupo Catho, the country's largest recruiting company.

Brazil's list of billionaires has grown, climbing to 20 this year from four in 2003, according to Forbes magazine. Brazil's richest 1 percent earns as much as the bottom 50 percent, according to the state-funded Institute of Applied Economics.

Luxury goods sales will reach $4.3 billion this year, a 48 percent rise from two years ago, according to Sao Paulo-based research company GfK Indicator.