Uruguayan president Jose Mujica appealed to workers and entrepreneurs to avoid an escalation of salaries and prices which leads “to all sort of fiddling” as is happening in Argentina.
The appeal follows a salary agreement in the beverage distribution sector which is above the cap established by the government in the salaries round with the purpose of keeping annual inflation below two digits.
“We have an example of what is happening on the other side. The Argentine project might like or not, but that’s not the question. The fact is inflation is out of control and has forced them to fiddle all around and they can’t find the way out”, said Mujica.
He added that “we don’t have much margin and we want to make sustainable what we have achieved so far, that is a high employment rate and a better re-distribution of national income”
“Yes we would like to increase salaries 10%, 20% but in the situation we are, doing that would be harmful for people on low incomes, fixed incomes or without organizations to defend them”, because of the inflationary impact.
Earlier this month the beverage distribution sector reached an agreement with a salary increase of 10.16%, above the government’s guidelines. This comes at a moment when other unions kept to the guidelines and inflation in the last twelve months to October reached 9.11%.
The Uruguayan government is pressed to keep to the two digit cap otherwise the round of labour negotiations instead of being annual would become quarterly causing additional turbulence to what is an already agitated environment.
With this in mind the administration of President Mujica reached an agreement with the main supermarkets that dominate 70% of the retail market to offer a basic basket of 200 products at August prices frozen until next January.
The government from its side will keep public utility rates frozen, including fuel, power and urban transport for a similar period, hoping that the two combined can make the local stats office INE show that 2012 will end with consumer prices inflation below 10%.
This has raised complaints from the small retailers who argue they have no guarantees that suppliers will keep to that spirit, or might even try to compensate with them the ‘sacrifice’ they are making with their larger clients.
Nevertheless the government seems to have transformed inflation into a ‘numerical’ challenge for what is left of the year.
But economists, advisors and private universities have pointed out that the problem of inflation is not prices, but rather the consequence and the main cause can be found in government spending.
In effect despite almost eight years of sustained growth, on average above 5%, the Uruguayan government has not been able to contain spending and the budget deficit, according to official data, now stands at 2.8% of GDP.
For the last two months Mujica and members of his economic team have said that “inflation has become the priority” of the government, with the Central bank repeatedly increasing the basic rate which now stands at 9% with the purpose of deterring mainly consumer credit.