MercoPress. South Atlantic News Agency

Uruguay's IPC in 2007 reached 8.5%, highest since 2003

Uruguay's consumer prices index increased 0.3% in December totaling 8.5% in 2007, two full points above the Central Bank's target and the highest since the 10.2% of 2003, according to the country's Statistics Institute monthly report

The means that for the second time in three years, the current Uruguayan administration consumer prices index target has been overshot. However the CPI by the end of the second quarter of 2007 was heading for an even higher annual rate but drastic measures decided at mid year, including lower public utility rates, cheaper public transport and higher interest rates plus improved climatic conditions helped to contain the fourth quarter which registered a minus 0.16 percentage variation. The mid year decision was crucial to keep inflation below two digits thus avoiding a round of quarterly salaries negotiations instead of the annual adjustment, which would have anticipated a disruptive 2008 of industrial relations. It must also be said that at the beginning of the year all the private economic consultants polled anticipated that the 2007 CPI would average 6.02%. The decreasing tendency of consumer prices was also reflected in the mobile last twelve months for the fourth month running beginning in September with 8.9%; 8.87% to October; 8.58% to November and 8.5% to December. The basic basket prices index, which excludes volatile items such as public utility rates, meats, fruits and vegetables, --also identified an underlying inflation-- was also above target having reached 7.2%. Regarding the different items which make up the IPC, food and beverage experienced the highest increase 18.1% and particularly vegetables 94%, as a consequence of adverse climatic conditions: floods in autumn and extreme cold in winter and early spring. Education, 8.8% and Housing, 8.7% also helped push the overall average. Another factor which influenced the IPC was the appreciation of the Uruguayan currency against the US dollar, 11.86% in 2007 which had a positive impact on purchases of foreign goods particularly household appliances and computers. But a stronger Uruguayan peso was not enough to contain the consequences of soaring crude prices for oil dependent Uruguay. Uruguay's Deputy Economy Minister Mario Bergara said the government was satisfied with the IPC results for 2007, "if the relevant international inflation for Uruguay in US dollars 15% – rise in commoditiesâ€"is compared to our 8.5%" "It can be appreciated that the monetary and fiscal measures decided at mid year were on target avoiding circumstantial factors from influencing expectations", said Bergara. Regarding 2008 expectations private sector analysts believe consumer prices will be above the 4 to 6% Uruguayan Central Bank target. They base their forecasts on the fact that underlying inflation is still significant, in the range of 7 to 9% and could have an impact if private sector salary negotiations don't arrive "to moderate increases". "The Central Bank will be forced to continue with its contracting monetary policy" anticipated Marcelo Sibille from KPMG.