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Uruguay forced to lower public utility rates

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Staff writer ▼ | October 7, 2014
Jose Mujica
New measures   To keep inflation below 10%

Uruguay's inflation indicator dropped to 8.36% in September from 8.75% in August, according to the latest report from the country's stats office INE.

During September consumer prices increased a full 1%, and 8,04% in the first nine months of the year. However despite the high percentage it is below the same period a year ago: 8.41%.

Likewise the 1% of September is below the 1.36% of a year ago but continues to be well above the Central bank's annual target of 3% to 7% and with three months still ahead of the revised 8.8% in this year's budget. A monthly survey from the Central bank put the figure at 8.44% for the twelve months.

The items with the largest increases were transport, 2.04% and food and beverage, 1.83% compared to the same month a year ago.

Private analysts have said that if the inflation indicator this year is to be below 10%, (because this is the roof inflation to keep labor union mid and long term accords), the US dollar exchange rate must remain below 25 Uruguayan Pesos and the 'managed' prices of public services (in Uruguay most are government monopolies) have to remain neutral or decrease in the last quarter of the year.

This has been a tool used by the Uruguayan government several years running down, which means keeping the price of fuel, power, drinking water, communications and health services frozen in the last quarter or even lowered, such is the case with electricity. The argument is that since it is mostly hydroelectric, abundant rains and full dams enable to lower power prices.

Eduardo Beati, an economist who manages several investment funds forecasted that if the current coalition government wants to keep annual inflation below the 10% barrier “it will have to continue adjusting figures through the administered prices of government goods and services”, which represent almost 25% of the goods and services basket, and so far this year, according to INE have increased 6.3%.

To these must be added other 'administered' prices or fixed by government such as urban and long distance fares, taxis and milk.

Beati also pointed out that the exchange rate must also be contained because of its incidence on imported goods and the expectations a more robust dollar in international markets generates. To contain this effect the Uruguayan central bank lifted all the limitations on incoming capitals to the country's money market. During July and August the US dollar in Uruguay climbed 1.8% each month and 4% during September.

But the fact remains that Uruguay is a net exporter of beef, grains and dairy produce which have a direct impact on the local basket.

In effect food and beverage which explain half of September's inflation indicator reached 1.83% and 10.42% in the last twelve months. Transport was up 2.04% and 9.35% in the last twelve months and health services 0.55% and 6.75%.


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