(Adds retail sales breakdown, data from wider retail index)
By Brad Haynes
SAO PAULO, May 14 (Reuters) - Retail sales in Brazil tumbled for the second straight month in March, dropping more than expected as a spike in consumer prices and rising unemployment put shoppers on edge.
Sales volumes fell 0.9 percent from February, the government statistics agency IBGE said on Thursday, worse than the 0.35 percent drop forecast in a Reuters poll of 26 economists polled by Reuters.
Consumer confidence in Brazil is at its lowest in a decade as inflation and interest rates soared, pushing Latin America's largest economy towards what may be its worst recession in 25 years.
Sales at supermarkets and home furnishing stores dropped 2 percent and 3 percent respectively, as households cut back spending on food and durable goods alike. A wider retail index reflecting a sharp slowdown in auto sales and construction materials dropped 1.6 percent from February.
The slumping demand has been a rude awakening for retailers that outperformed the rest of the Brazilian economy even as growth stagnated in recent years. Recent layoffs could weigh even more on household consumption, worsening the downturn.
First-quarter earnings from consumer goods companies reflected the souring environment. Cosmetics producer Natura Cosmeticos SA saw sales in Brazil shrink, while clothing retailer Cia Hering warned its earnings would continue to suffer for most of the year.
Most economists are expecting the central bank to raise interest rates again this year, pushing borrowing costs higher and discouraging demand as it struggles to rein inflation. (Additional reporting by Pedro Fonseca and Rodrigo Viga Gaier in Rio de Janeiro Editing by W Simon)