MercoPress. South Atlantic News Agency

Uruguay: Inflation becomes “permanent challenge”

Consumer prices have become a nightmare for Minister Astori

Uruguayan Ministry of Economy admitted that inflation has become a “permanent challenge” demanding an “ongoing monitoring” of prices. Remarks follow the latest readjustment of fuel (2.4%) and bakery (14%) prices which have been influenced by the soaring values of oil and wheat.

However Economy sources published in the Montevideo press said that the latest price increases should not have a significant impact in the April Consumer Prices Index, because their influence on "production costs" has been virtually "neutralized". But the same sources warned that contrary to last year when the Uruguayan government lowered public utility rates and subsidized the price of milk and urban transport to help keep the annual inflation on target, in 2008 similar decisions if adopted, would be much more contained. According to Uruguayan Economy Ministry sources international inflation in 2008 is expected to be as high as or higher than last year because of the strong market for commodities. This has a double impact on Uruguay which must import oil and gas but at the same time as a strong exporter of beef, diary products, wheat, rice and other cereals, international prices are transferred to the domestic market. Uruguay's Minister of Economy Danilo Astori said that for the latest fuel prices adjustment the references had been the West Texas sweet oil barrel at 100 US dollars and an exchange rate of 20.50 pesos to the US currency. The Uruguayan currency as in the majority of commodity exporting countries has been appreciating sustainably against the falling US dollar. But Astori said that the international price of the West Texas is currently in the range of 108 US dollars per barrel, so "we are constantly looking at events and costs parametric". During the first two months of this year the Consumer Prices Index in Uruguay increased 1.7% with the main hikes in Housing 3.95%; Education, 3.25%; Medical Care, 2.62%; Food and Beverage, 2.08%. However in the sub items, Oil & fats jumped 11% but Fruit and fresh vegetables dropped, 7.3%.