MercoPress. South Atlantic News Agency

Inflation in Uruguay feeling impact of 11.4% private domestic demand expansion

Sales of cars and other imported goods soared last year

Private domestic demand was a crucial element in the 2010 performance of the Uruguayan economy that expanded 8.5%, for the eighth year running, according to the latest report from the Central bank. But inflation is also running well above target.

However the rate of expansion has also signalled an alarm bell since as the main component of overall demand private consumption grew at an exceptional 11.4% in 2010 which is three percentage points higher than the GDP rate.

“This can be attributed to the strong growth in sales of automobiles and other semi-durable goods imported from overseas”, points out the Central bank.

In the last quarter of 2010, private consumption growth was 12.3% almost doubling GDP expansion in that period which was, 6.5%.

This is a symptom of the economy “overheating”, which means supply can’t keep pace with the increase in demand, which has already triggered inflationary pressures that the Uruguayan government is attempting to combat with monetary and fiscal policies.

Meantime the Uruguayan government demand expanded 2.2% last year with a minimum incidente in the overall GDP expansion (0.2 percentage points).

The Central banks reports that the overall domestic demand contributed 8.1 percentage points to the GDP annual growth and represented a 10.1% increase over 2009.

However inflation has accompanied the higher-than-expected growth, with annual inflation at 7.67% through February, above the Central bank's target range of 4% to 6% by year's end. The Central bank is expected to raise its benchmark interest rate at its quarterly meeting this week to try to tame inflation pressure