The inflation It is one of the main issues, but of concern, yes of occupation of the government for this year, which is not only seen in the emphasis placed on the reduction of price increases during 2023 – noted as one of the two major tax cuts and an important achievement of the current administration—; but also in the decision of monetary politics of the Central Bank of Uruguay (BCU) to maintain interest rates despite the serious problem of competitiveness that the country has.
In this scenario, the Five published a new Inflation Report in which he anticipated that, although a decrease in the interannual value is forecast until April, starting in July it would once again exceed the target range. This is in line with business expectations of inflation which, although they have been reducing month by month, are still around the 6.4% expected for the moving year ending in December.
Projections update
In its report, Cinve pointed out that the inflation accumulated in the year ended January was 5.09%—within the target range for the eighth consecutive month—; and that the forecast for February is for a monthly variation of 0.7%, so, on a year-on-year basis, a reduction to 4.8% would be observed.
Until April, this scenario of meeting goals could be maintained, but already in May the monthly inflation It would be higher than that experienced in the same period of 2023, so the downward trend would be reversed. This will be due to the fact that, in addition to an increase in prices during this year, the interannual comparison will be made with months in which inflation remained stable or even fell – such as in June and July – so, between May and August, the Consumer Price Index (CPI) It will be above the figures recorded last year.
As a consequence, the inflation It could reach 6.3% year-on-year in July, and would remain above the target range for the rest of the year.
Similarly, 2025 is also projected with high inflation: Cinve predicted 7.1% for the end of next year, while the highest monthly measurement would be in November, with 7.2%.
The influence of monetary policy
The survey does not fail to mention that, although the Monetary Policy Committee (Copom) was not very explicit regarding the weight of the different factors considered when deciding to maintain the Monetary Policy Rate (MPR) without changes —after 2023 with a marked tendency toward cuts and a margin of four points between the profitability of the peso (with a rate of 9%) and inflation—; the inflationary pressures of the different political-economic phenomena in the region and the world were present, although they would not result in significant impacts.
On this point, the research center pointed out that the fact of maintaining the interest rate at 9% compared to a reference rate of 5.25 – 5.50% in dollars, implies that the interest rate will also remain high. rate differentialmaintaining the incentive for positions in national currency in the portfolios of financial agents.
“That is, the incentive from monetary policy is maintained for downward, or at least stable, values of the exchange rate in Uruguay”, the report says.
Source: Ambito
