The inflation It has been within the target range for 10 months and that is why some specialists are beginning to suggest that the Central Bank of Uruguay (BCU) a more ambitious objective can be set, a request that found support in a study that suggests the possibility of limiting the margin of the CPI.
A study carried out by economists Luis Rodrigo Arnabal and Javier García-Cicco determined that the optimal inflation level for the country in the long term would be 3.5% annually, with a suggested range between 2% and 5%.
The survey, released in the last few hours by the CED economist, Ignacio Umpiérrez, was based on three characteristics of Uruguay as an emerging country: rigidities asymmetric nominals, indexing to past inflation and price fixing in the dominant currencies.
Thus, the study specified that the range between 2% and 5% “induces a relatively slight welfare cost in relation to the optimal, less than half a percentage point of consumption per period.” At the same time, the authors highlighted that “the choice of the inflation target is not independent of other characteristics of the economy.” monetary politics or how the instrument reacts when the shocks “They cause inflation to deviate from the target.”
The importance of discussing a new objective and providing the BCU with independence
When collecting the analysis data, Umpiérrez added that “living with an inflation of 8% for more than 15 years was costly in terms of well-being losses” and, at times where expectations decline, he stated that “the drop from 8% to the 5% axis would have translated into an improvement in welfare of the order of 2%”.
In any case, for the CED specialist, the next Budget Law 2025-2029 “should discuss a lower inflation target than the current one,” considering that the study “does not differ significantly from other references for emerging and developed countries,” questioning the idea of “seeking a ‘Uruguayan exceptionality’”.
On the other hand, he considered that “the best contribution of monetary policy to ‘competitiveness’ and the growth The long-term goal is to move towards low and stable inflation” and countered that when there were multiple objectives “the TCR, “Neither the objective was met nor were shocks from the rest of the world cushioned.”
Finally, he called for “avoiding complacency” and highlighted: “The comfort zone of 8% and ‘I act when it is close to 10%’ was not optimal before, nor should the next steps aim to ‘consolidate an inflation rate’. that does not exceed 6% annually.
In this scenario, he considered that “the political system owes a great discussion about how to provide greater autonomy and independence to the BCU”, for which he postulated “a reform of its organic charter (failed on two occasions in that regard)”.
Source: Ambito
