MercoPress. South Atlantic News Agency

In spite of August surge, Uruguay expects 2009 inflation to be below 7%

Power and fuel supplied by government monopolies mostly responsible for August unexpected 1.23%

Uruguay’s retail inflation jumped an unexpected 1.23% in August, the highest in the last 14 months, totalling 5.11% in eight months and 7.28% in the last twelve months. If the tendency is confirmed during the last four months of 2009, the consumer prices index would be above the Central Bank’s upper target of 7%.

Public utilities administered prices: power and fuel, plus fresh vegetables were mostly responsible for the August surprise. Electricity, 9.4%, cooking gas, 3.5% and kerosene, 6.3% contributed the most, as part of the policy to recover losses experienced during the last 18 months by the country’s power and fuel companies, which are government monopolies.

Other items also contributed: food and beverage, 1.43%, (mainly fresh fruit, 5.1% and vegetables 4.6%) and transport and communications, 1.73% spurred by public transport which was up 3.4%.

Deflationary prices, ranging from 1.45% to 1.89%, for clothing, footwear and leisure contributed to ease the upward pressure.

To comply with the Central bank’s upper target of 7%, inflation in the coming four months should be in the range of 1.8%, which anticipates no further increases of power or fuel and a strong appreciation of the Uruguayan peso against the US dollar as is currently happening, according to local analysts.

The last four months of the year “are a period of mild weather with relatively low inflation and seasonal production which together with a cheaper US dollar (and imports) means the 2009 inflation target can be achieved”, said economist Marcelo Sibille from KPMG.

“The evolution of the US dollar in the Uruguayan market, as well as that of international prices will contribute to mitigate inflationary pressures mainly in those goods exposed to outside competition”, said Ramio Almada from Oikos consultants.

Moreover next October Uruguay is holding presidential elections which anticipate the government will keep the lid on prices.