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Uruguay combats inflation with price agreements

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Staff writer ▼ | March 18, 2014
Uruguay store milkThe Uruguayan government finalized a prices agreement with commerce and trade organizations to help bring down the third highest inflation of the region which is advancing at an almost two-digit pace.

The sixty day agreement with the supermarkets, small stores, importers and meat suppliers means a basket of 200 to 300 items from the basic food basket will keep prices unchanged, and the list could be increased to 1,000 items "if the dollar exchange remains stable during the coming months".

The agreement was sealed in a meeting of representatives from the different organizations with Economy minister Mario Bergara, and is expected to become effective next April first with an evaluation meeting in May.

However fruit and vegetables are excluded of the deal because of price volatility linked to climate conditions. Nevertheless the government has promised that it will eliminate VAT from these items.

The previous week Minister Bergara met with organized labor, PIT-CNT where he announced that public utilities (in Uruguay government monopolies) such as power, drinking water, communications will eliminate fixed charges and VAT, a "fiscal sacrifice" which will be the government's contribution to try and contain inflation, the highest in Latam behind Venezuela and Argentina.

In the first two months of 2014, inflation added up to 4.14% and in February 1.66%, at an annualized 9.82% when all alarms started to ring. The government also revealed that it is prepared to suspend for a few months if necessary the VAT on fuel at the pump. Likewise the monthly cost of health care in the private sector will be frozen and so will the price of milk.

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