MercoPress. South Atlantic News Agency

Uruguayan government and supermarkets agree to keep 2012 inflation below 10%

Minister Lorenzo asked supermarkets to elaborate a basket of 150 basic items with a 10% rebate and frozen until the end of the year

Uruguayan supermarkets pledged to help the government of President Jose Mujica to keep inflation below 10% at the end of the year even when in the first nine months of the year it reached 8.64%.

Last week Economy minister Fernando Lorenzo asked the large supermarkets’ lobby to organize a basket of 150 basic products with a 10% rebate from current prices and no longer accept any price increases from providers in the next three months.

Uruguay’s inflation is stubbornly high mainly on a government bloated budget and rising costs because of much needed labour reforms and strong unions contrary to any review and dominated by the Communist party, a strong ally of President Mujica.

The Mujica-communist alliance became the majority faction of the ruling coalition Broad Front, thus conquering in 2009/2010 the national government and the city of Montevideo with a cadre member Ana Olivera as mayor.

At the beginning of the month contrary to expectations the Central bank increased the basic interest rate to 9% in an attempt to cool domestic demand and credit. Previously it had imposed some limits on capital inflow attracted by the high interest rates, but there is not much more to be done with monetary policy.

However the government, the supermarkets lobby and the business community in Uruguay are very much aware that if the twelve month inflation in 2012 hits 10%, the annual round of salaries’ negotiations, based on a ‘peace clause’ will open the way for adjustments every four months, causing a major disorder in an already conflicting scenario.

The President Mujica administration needs less conflicts, the union leaders and the Communist party are aware of the negative effects on public opinion of ongoing labour upheaval and the business community already has sufficient problems with organized labour militancy and don’t want a further complication.

The business chambers are trying to convince the government on three year salaries contracts but if inflation hits 10% not only will that become a chimera but they will have to prepare for an even more turbulent scenario with labour.

Thus the supermarkets’ lobby has pledged that as of next weekend they will be presenting a basket of 200 basic items with a 10% rebate on current prices, until the end of the year. Some crucial items such as meat, a staple for Uruguayans could be confronted with an abundant supply of cheaper beef cuts.

Other meats, with a stronger dollar, such as chicken and pork could be imported from neighbouring Brazil or even Argentina.

Although supermarkets support is evident the small shopkeepers’ association has warned that small supermarkets and self services “will have a rough time, because if the plan goes ahead it will be complicated since profit margins are tight”.

“We were not invited by the Ministry of Economy because they know very well that one or two supermarket chains clearly dominate the retail market”, said Mario Menendez, president of the small stores, bars, self services and others association, Cambadu.

“The request is not extensive to small shopkeepers and neighbourhood supermarkets, but it will be tough for them since we are small independent units and have no price bargaining power with providers. On the other hand small shops and self-services are in neighbourhoods where supermarkets don’t reach”, pointed out Menendez.

As to the government ensuring that inflation is below the 10% mark, with the 200 basic items and some profit-sacrifice from supermarkets and providers keeping prices frozen, it is believed it can be reached.

Most probably as happens in a neighbouring country, the 200 items will be mostly those included in the elaboration of the consumer prices index.

The Uruguayan government has some successful experience in the matter keeping the urban transport subsidized and in drought years in spite of soaring costs (all fuels are imported) has frozen public utilities rates such as power and fuel.

Since they are basically government monopolies the deficits are covered with monies from the Treasury.