MercoPress. South Atlantic News Agency

For second year running Uruguay manages deflation in December, keeps inflation in one digit

The government power company UTE helped by cutting electricity rates up to 20%

Uruguay again managed a December with deflation, (as happened exactly a year ago) with the consumer prices index down 0.72%, helping to bring 2013 inflation to 8.52%, according to the official stats office, INE. This is the sixth year in the last ten that Uruguay despite an unprecedented decade long growth-boom and abundant revenue overshoots its inflation target.

 As a year ago, the government power monopoly company UTE, played a crucial role with its promotion plan by reducing December bills allegedly to the good customers that helped to save electricity earlier in the year.

This according to government sources had a cost of 16m dollars which is equivalent to 1% of UTE total revenue but in a year with a rainy spring season that has the dams bursting with water, represents savings of 150m dollars compared to a year ago, when thermal power was needed.

As a consequence the item Housing was down 6.13% (as was food and drinks, 0.32%) which helped contains the rest of the CPI. In effect Housing was down that percentage helped by a 20.13% fall in electricity bills.

In December, the price of beef and chicken was down, although barbecue cuts were up, and most fresh fruit and vegetables because of a favorable spring also experienced lower prices. However coffee, tea and chocolate, as well as bakery produce and fish all experienced increases. Particularly strong was the infusion 'yerba mate', a staple drink in the River Plate and south of Brazil which is short in supply. Price soared 64%.

A year ago and with inflation heading to two digits, UTE also implemented rebates in the December bills which helped with a 0.73% deflation and an overall twelve month inflation of 7.48%. But as said above, both in 2012 and 2013, the annual inflation was out of the Central bank target of 4% to 6% and which should be tighter as of next July with 3% to 7%.

However despite the good stats for December and 2013, January is a box of surprises: UTE will increase power service 7.36%; drinking water, 7.8% and fuel has been announced will climb a further 3% as will cooking gas, which means the first month of 2014 could register an inflation of 2% to 2.5%, according to local economist Javier de Haedo.

“Inflation in January will be in the range of 2%, and the rest of the year can be expected to be similar to 2013 with prices climbing 8% to 9%”, said economist Aldo Lema who added that any rise in the money exchange rate could keep inflation further out of target.

Pablo Moya from Oikos consultants said that January is also a month of inflation above 1%, and 2014 will experience an overall inflation in the range of 8%. “We can expect deflationary price pressures from the rest of the world, which should help”.

Likewise Cinve (Economic Research Center) argued that 2013 inflation was as estimated, 8.5% and forecasts that with the regional and world scenario stable, ”preliminary estimates for 2014 CPI are in the range of 8.4%.