MercoPress. South Atlantic News Agency

Uruguay considering food price subsidies to contain inflation

Uruguay's March consumer price index CPI jumped 1.14%, the highest since last August and fourth running in the past six months, according to the latest release from the Statistics Office. Government officials expressed concern but cautioned that “consumer inflation has become a challenge all over the world”.

March's 1.14% means the first quarter of 2008 ended with an inflation of 2.68%, which annualized is equivalent to 11.9%, more than 60% the Central Bank's 2008 target. In the last twelve months CPI was 8.03% up from February's 7.7%. "There's a world outbreak of inflation", said Vice president Rodolfo Nin on Thursday. "We're concerned and closely monitoring that it does not have an impact on low income brackets". "We're doing our best to contain the IPC increase; to protect purchasing power of the needy", added Economy and Finance Deputy minister Mario Bergara who revealed that the government is considering subsidizing some staples of the basic food basket. Bergara also mentioned the fact that the strong depreciation of the US dollar means international prices continue to increase at rates that were expected to soften. "This has an immediate effect on our domestic prices given the openness of the Uruguayan economy" he underlined. Prices of the basic food basket which have suffered the greatest impact are cooking oils, wheat and flour, and dairy products, "with international prices in US dollars far higher than could be expected or forecasted; this has a direct impact in our domestic prices". Mr. Bergara said the scenario demands from government "maximum fiscal and monetary caution to keep inflation at reasonable parameters". He recalled that when a similar situation last year, and in anticipation of what might come, "we created compensation mechanisms for public transport; if not the Montevideo local fare would be costing 25 pesos and not 13.50 as currently". If the volatile items are excluded of March's CPI, the index would have been 1.09% which still is too high. However in Uruguay the first quarter is usually the strongest in price hikes and in the last twelve months, excluding public utilities rates, beef, fresh fruit and vegetables, inflation would have reached 7.6%, slightly above the Central Bank's target of 7%. However if the strong depreciation of the US dollar against the Uruguayan peso is taken into consideration (15.1% in the last twelve months to March) Uruguay's inflation in US dollars in the last twelve months would have soared 27%. March's sharp increase tendency was heavily boosted (60%) by Food and Beverage which on average jumped 2.15%. The most influential items were vegetables 8.6%; dairy produce, 8.3%, bread, flour and cereals, 3.1%; education also contributed with a 2.7% hike. All goods taken into account, those affected or influenced by international trade increased 1.32% while those considered "non transable" (only domestic influence) expanded 1.04%.