Uruguay has price increases under control: inflation remains at its lowest levels in almost two decades

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Montevideo.-Prices in Uruguay rose 0.36% in June, which meant a second consecutive increase in the variation of the inflation rate. However, the Consumer Price Index (CPI) accumulated 4.96% in the year, a figure that is within the range that the Central Bank of Uruguay (BCU) established as a target (3%-6%), according to data from the National Institute of Statistics.

The increase in prices in the previous month was explained by variations in the areas of food and non-alcoholic beverages (0.08%), housing (0.04), transport (0.05) and recreation, sports and culture (0.08%). Despite the increase, inflation remains closer to the centre of the target range set by the BCU (4.5%). The increase in the last month was in line with the expectations of market agents.

The information was released as a message from the president of the Central Bank of Chile, Diego Labat, who celebrated the fact that inflation has been within the target set by the monetary authority for one year.

Labat recalled that Uruguay has a “long history of high inflation” and pointed out that one of the objectives of his administration was to change this trend and “consolidate low and permanent inflation.” “To achieve this, we embarked on a different path. We made more frequent monetary decisions, published new projections and more technical analysis, and marked a mark of much dialogue with economic actors,” he explained.

The BCU also sought to ensure that “people and companies understand this process and align their inflation expectations.” It also recalled that the interest rate was set “so that prices remain within a corridor called the target range.” “Today Uruguay has managed to keep prices within the target range for a whole year and we project that this process will be consolidated over the next 24 months,” it said.

Labat stressed that having low inflation “helps money go further” and “helps companies make better decisions regarding investment and employment.” “Low inflation is good for everyone and helps the country grow,” he concluded.

During these twelve months, Uruguay reached the lowest CPI values ​​in almost two decades. In April, for example, the CPI accumulated 3.67% in 12 months, the lowest value in 18 years (in August 2005 it was 3.42%).

Labat explained months ago that the BCU’s strategy was to place the CPI within the margins “appropriate for Uruguay.” The main achievement of the figures of these months is to have demonstrated that in Uruguay “it is possible” to reduce inflation, which breaks with a dominant thought.

“There was a dominant discourse that maintained that inflation cannot be lowered in Uruguay because it is a different country. And in reality what is clear is that Uruguay is the same as other countries, and by applying the same technology that practically the majority of countries in the region and other parts of the world have used – from New Zealand, Europe, the United States, Peru, Paraguay, Colombia, Chile, Brazil – we have shown that it can be done,” he said in an interview with La Diaria.

Interest rate management was key to achieving this reduction. During the pandemic, there was a strong reaction from the monetary authority by raising this reference to 11.5%; later, with better conditions, the Central Bank reduced it to 8.5%.

According to some economists, Uruguay’s success in lowering inflation is also explained by a deflationary year at the international level, a stagnant domestic economy, a fall in the dollar exchange rate and a flight of consumption to Argentina, a trend that ended in December.

In recent days – except for this Wednesday – the dollar has appreciated and some market agents expect this to have an effect on inflation.Infobae.