Uruguay: Annual inflation falls to over-four-year low in February
March 5, 2015
In February, consumer prices increased 1.1% over the previous month, which came in notably below the 2.2% rise tallied in January, but overshot market expectations of a 0.94% rise. January’s increase was abnormally high due to the adjustment in water and electricity tariffs that takes place in January every year. According to the Statistical Institute, February’s increase mainly resulted from higher prices for furniture, education, and housing. Conversely, clothing and footwear, as well as transport registered lower prices than in the previous month.
Annual inflation dropped from 8.0% in January to 7.4% in February, which marked the lowest print in more than four years. As a result, annual average inflation ticked down from 8.8% in January to 8.6% in February. Although it is still above the Central Bank’s target range, inflation is moving closer to the upper-bound of the 3.0%-7.0% range.
According to analysts, it is unlikely that the incoming Vazquez administration, which took office in March, will successfully tackle the issue of high inflation going forward. The main reason is that one of the central causes of high inflation is the prevailing system of wage indexation, which is a difficult area in which to introduce reforms.
Author: Cecilia Simkievich, Economist