The Consumer Price Index, CPI, in Uruguay climbed 0.99% during February, accumulating 2.91% in the first two months of the year, and 8.89% in the last twelve months, far above the government’s target of 4% to 6%, according to the National Institute of Statistics, INE Monday release.
Inflation in 2012 reached 7.48% which was also above target despite several accounting cosmetic measures from the government such as keeping government-managed public utilities rates frozen or with rebates if residential power consumption was contained, plus subsidizing urban transport.
However February is the month when parents go shopping for the school year that begins in March and this item Education soared 4.47% in the second month of the year with an overall incidence of 0.15 points.
A second item with a strong increase in the second month of the year was Housing which climbed 2.65%, with an incidence in the monthly index of 0.38 points. This was made up of 0.80% for Rent, 3.20% for drinking water and 5.69% for power, both supplied by government monopolies.
Food and Beverage (non alcoholic) increased 0.99%, while Leisure and Culture were down 2.95%
The February inflation index was in line with private estimates according to the monthly poll from the Central bank among the leading companies of the country that anticipated 1%.
Inflation has become one of the main challenges of the Uruguayan government that has seen the fiscal budget deficit balloon to 2.8% of GDP in twelve months and has caused serious rifts inside the administration of President Jose Mujica.
While some of his advisors insist in spending to help promote domestic demand and keep the economy steaming, from the Ministry of Economy the approach is completely orthodox given the regional and global scenario: time to cut expenses, to make savings and promote austerity at least for the next twelve months, ahead of 2014 which is an electoral year.
Last December the Central Bank raised 25 basic points the reference rate to 9.25%, well above the Brazilian Selic, in an effort to try and contain inflation.