MercoPress. South Atlantic News Agency

Uruguay September inflation 0.41%; 8.9% in 12 months

Consumer prices in Uruguay increased 0.41% in September, accumulating 8.67% in the nine months of 2007 and 8.9% in the last twelve months, according to the official Statistics Office, INE.

September signaled a significant drop from August unexpected 1.73% and hopefully an inflection point for the administration of President Tabare Vazquez. The items with the greatest influence were food and beverage, 1.5%; clothing and footwear, 1.43%, while transport and communication, and health services and insurance dropped 0.75% and 0.36% respectively. In the Food item, the fresh fruit chapter soared 9.09% followed by dairy produce and eggs, 6.3%, and meats and chicken, 5.18%. Transport and communications helped contain the impact of agricultural commodities with a 3% reduction in fuel costs and 1.39% in telephone rates. In Uruguay energy and communications prices are set by the government. Uruguayan authorities insist that in spite of the mid year hike, 2007 inflation will end below the two digits but above the original Central Bank target of 4 to 6%. However the Central Bank insists that the September 2008 target remains in the range of 4 to 6%. With this in mind Central Bank authorities announced further monetary contracting measures beginning with an increase in the interbank call rate with a floor of 7%, and anticipates interest rates on deposits could again begin to be positive. Following the announcement the US dollar in money exchange houses in Montevideo dropped below the 23 pesos benchmark to 22.50 Uruguayan pesos "We've managed to break the backbone of the consumer prices hike curve", said Central Bank president Walter Cancela. "Monetary policy complemented with other steps taken by the Ministry of Economy, lower public utilities rates and total, partial or temporary reduction of taxes has proved effective". The Uruguayan government also announced a subsidy for urban transport which should help cut the cost of bus fares in Montevideo, which happens to be one of the items included when calculating the CPI. The Ministry of Agriculture and Livestock has also played an active role in helping to shock absorb the impact of international commodity prices in the Uruguayan food basket by convincing farmers to supply the domestic market at reasonable prices, in spite of the strong international demand for Uruguay's beef, cereals, oil seeds and dairy produce. Although not officially mentioned by Minister Jose Mujica, the example of neighboring Argentina which simply banned or imposed taxes on exports whenever the domestic market went unsupplied acted as a strong convincing argument. However Mujica has not discarded taxes on dairy exports since it would be a "fair way to compensate consumers who for many long years, paying higher domestic prices, helped promote exports in a highly global subsidized market". Opposition leaders have warned that subsidizing bus fares in Montevideo, which could be understandable, is similar to the "temporary and specific" temptation path chosen by the Argentine Kirchner administration, which has led to a myriad of problems and the total discredit of government data.