MercoPress. South Atlantic News Agency

Uruguay's April inflation of 0.33% surprises experts

Uruguay's consumer price index, CPI, increased 0.33% in April the best performance so far in 2008 and the lowest since April 1962. This means that CPI in the first four months of the year reached 3.2%, (annualized 9.92%) and below the same period in 2007 (4.98%), according to the latest release from the national Statistics Institute.

"April has given us time to take breath, but that's all", warned on Tuesday a member of the Uruguayan Economy Ministry because "inflationary pressures persist" and "we must remain on watch". However the source admitted that April's 0.33%, below the 0.8% forecasted in the private sector, "proves the positive effect of fiscal and monetary (interest rate hike) decisions which have been implemented since last year". Officials from the Statistics Office said that international prices of commodities excluding oil seem to have reached a roof and are beginning to moderate which should have a positive impact on the CPI, particularly regarding food prices. But the soaring price of oil forced a new hike in fuel prices in Uruguay averaging 4.6% after a previous 2.4% increase at the end of March. The latest rise was estimated on the basis of a West Texas oil barrel at 110 US dollars and an exchange rate of 19.75 pesos to the US dollar. The fuel increase means May's CPI takes off with a 0.13% increase. Private sector analysts admitted April's inflation was lower than expected but also cautioned that inflation excluding the volatile prices of food and energy remains too high in the range of 0.6 to 0.66%. These analysts expect an annual inflation in 2008 above 7%, while the Uruguayan Central Bank has a target in the range of 3 to 7%. April's unexpected performance compared to March's 1.14% means inflation in the last twelve months has dropped to 7.8%. Economist Pablo Rosselli from Deloitte warned that "inflationary pressures" persist and said that keeping the CPI "tight" is not a "sustainable policy". Mercedes Comas from Price Waterhouse Coopers said that the (Uruguayan) government's most effective tool to contain inflation has been moderating energy prices. "But fuel in Uruguay has increased 12% in the last twelve months while oil soared 80%" and this has "lit a yellow light". The April CPI shows that 85% of the increase was born in higher food prices (0.4%); housing (0.8%) and clothing and shoe wear (2%). But even at the current level of prices the basic basket of goods and services for a Uruguayan family is estimated in 22.075 pesos equivalent to 1.120 US dollars.