Inflation had a new drop, up to 7.55% per year

There, the item with the highest weighting (with more than 25% of the total) is Food and drinks, which has been rising well above inflation in recent months, as a result –among other things– of the impact of the increase in food worldwide caused by the war. This particularly affects the lower income householdswho have a higher proportion of spending on food.

However, in recent months the meat -a central food in the diet in Uruguay-, it has had significant declines even in nominal interannual terms, being one of the factors that explain the decline in inflation. Thus, despite increases in fruits and vegetables and baked goodsthe annual inflation rate for the food item fell from 12 to less than 11% in February.

Likewise, the latest decreases in the tariffs of fuels have collaborated in a very relevant way in the fall in inflation, which is now at its lowest level since September 2021. This trend occurred despite increases in health costsand also in the food and accommodation servicesamong others.

Inflation and monetary policy

Beyond the measurement of all the items that the INE does month by month in the different items, the general incidence in the inflationary dynamics of the dollar crashwho had a year-over-year decline of almost 10% in February. Indeed, the drop in the dollar affects, for example, when transferring the international costs of fuels to values ​​in current pesos; the same for many imported products and other products and services that are quoted in dollars.

Faced with the increase in inflation that began to show itself last year, the Central Bank of Uruguay (BCU) defined successive increases in the interest rate aiming at a contractionary monetary policyin order to lower the inflation rate. This policy tends to make credit more expensive but also to lower the exchange rate.

If this downward trend in the annual inflation rate consolidates, surely the Central Bank defines some decrease in the monetary policy rate. This could be very important to prop up the dynamics of the economy and even improve the exchange rate, all of which is relevant because the Uruguayan economy has slowed down its growth rate and runs the risk of a certain stagnation.