Tax Spike in Brazil Weighing Heavily on Cosmetics Market

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Cosmetic retail prices will be lifted as much as 12 percentage points above inflation this month due to higher taxes in Brazil, according to an article by Luciana Bruno posted on Reuters.

Due to a new policy in May that levied the industrial IPI tax (IPI stands for Imposto sobre Produtos Industrializados, which is Portuguese for Tax on Industrialized Products) on cosmetics wholesalers and producers. These taxes will drive the cost cost of cosmetics 20% or more, which, according to Bruno, will stoke inflation and weigh heavily on the world's No. 3 beauty market (Euromonitor International).

Brazil's benchmark consumer price index has already climbed nearly 9% in the past 12 months to an 11-year high, says Bruno.

João Carlos Basílio, president of trade association Abihpec, warns sales may plunge in the coming months—forecasting a 17% drop in sales of hygiene and beauty products this year. 

The price increase comes at an especially unfortunate time—Brazil is facing rising unemployment and a likely recession, says Bruno. Consumer spending in the country was expected to grow at just 0.6% in 2015.  

How Companies are Responding

  • Hypermarcas SA has said it would raise consumer prices in July after an average 7% increase in April.
     
  • Natura SA has been more gradual, announcing a roughly 2.5% price increase on certain products in June following an average 3.7% increase in February. Natura's chief executive, Roberto Lima, said in April that the company would be careful "not to go overboard," and has not announced further price changes this year.
     
  • Igor Bacchi, commercial director of Brazilian cosmetics distributor BIM, said L'Oreal SA had raised prices 15–20%.

Source: www.reuters.com