UPDATE 1-Brazil retail sales fall for third month in a row in October

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BRASILIA/SAO PAULO, Dec 8 (Reuters) - Brazilian retail sales fell in October for the third consecutive month, data showed on Wednesday, as surging inflation erodes consumers' purchasing power in Latin America's largest economy.

The seasonally adjusted monthly drop of 0.1% in October from September came in below the median forecast of a 0.8% rise in a Reuters poll of economists. The 7.1% drop in volumes from a year earlier was bigger than the 5.6% fall forecast in the poll.

Government statistics agency IBGE said sales fell from a month earlier in five of the eight categories surveyed in October, dragged down by a 1.1% drop in books and paper craft materials and a 0.5% fall in home appliance sales.

So far this year, retail sales are up 2.6% from the January-October period last year, which was hit by the COVID-19 pandemic.

A broader sales index, including cars and building materials, fell 0.9% in October from September and 7.1% from a year earlier, IBGE said.

Earlier this year, many economists expected retail sales to make a rebound, boosted by a strong national vaccination program helping to contain COVID-19. However, the latest figures show families' salaries have struggled to keep pace with inflation, taking a toll on consumer demand.

With 12-month inflation over 10%, Brazil's central bank is in the middle of one of the most aggressive rate-hiking cycles in the world, with economists forecasting another interest rate hike of 150 basis points for its benchmark rate on Wednesday.

Analysts already estimate persistent inflationary pressures and sharply higher borrowing costs will slow economic growth significantly next year. (Reporting by Marcela Ayres in Brasilia and Gabriel Araujo in Sao Paulo; Editing by Andrew Heavens)