MercoPress. South Atlantic News Agency

June’s index shows result of Uruguay’s battle with inflation remains uncertain

Economy minister Fernando Lorenzo is confident inflation will be contained in coming months

Uruguay consumer prices increased 0.35% in June, completing 8.61% in the last twelve months, which remains above the Central bank target of 4% to 6%, and the latest estimate of 7.8% presented last week by the Executive in its additional budget report to Congress.

In May, 12 month inflation had already reached 8.53%, according to the latest official monthly inflation release.

In the first six months of 2011 consumer inflation advanced 4.71% which compares negatively with the 3.09% of the same period a year ago. In the 12 month to June, inflation reached 8.61% while a year ago in the 12 month to June 2010, it reached 6.19%

Annual inflation is expected to moderate in the next months of July and August, following a similar trend a year ago. If this effectively happens it could come as a relief for the Uruguayan government and closer to the latest estimate of 7.8% which the Executive presented to the Legislative branch last week.

The Uruguayan government hopes are based on expectations that international commodity prices consolidate the moderation tendency of recent weeks, which together with Central bank measures to increase reserves and the basic interest rate should begin to soften strong domestic demand.

“We are seeing a convergence of tendencies with those objectives announced by the government which indicates that policies implemented are being effective and economic agents’ expectations are progressively advancing to the target outlined”, said Economy minister Fernando Lorenzo.

He added that “we believe that in the next two months we will see a substantive reduction of annual inflation rate which is going to further contribute to make expectations align with targets”.

In the message to Congress, the Executive branch estimated inflation for 2012 at 6.3% and in 2013, down to 5.6%, levelling to 5% the following years.

Of the thirteen items which make up the retail prices index in June six were above the 0.35% for the month and the other seven below. Among those that hiked most are Housing (0.50%), Heath care (0.49%, Recreation and culture (0.88%), Restaurants & hotels (0.50%), and Other goods and services, (0.83%).

Communications recorded negative growth, minus 0.11% and transport remained virtually unchanged. This has been helped by the fact the government has kept the so called administered prices (fuel, power, water, gas, communications) frozen.

However a broader view shows that in the first half of the year Food and Beverage jumped 5.08% and in the last 12 month period, 12.34%; Alcohol and tobacco, 1.82% and 3.15%; Clothing and Foot wear, 2.03% and 3.79%; Housing, 6.81% and 10.90%; Furniture and home appliances, 5.10% and 7.39%; Health, 4.26% and 6.39%; Transport, 5.16% and 5.70%; Communications, minus 0.48% and minus 4.39%; Recreation and Culture, 2.82% and 5.62%; Education, 6.66% and 10.07%; Restaurants and hotels, 6.33% and 13.77% and Other goods and services, 4.15% and 8.74%.