The president of the Central Bank, Diego Labat, estimated that inflation will close the year around 8.5%, and that “it will continue for a few months” above the target range established by the authorities. Inflation closed stable in the 12 months in May at 9.37% and accumulated a practically unchanged quarter.
“There is no doubt that in the 24-month horizon we aim to be between 3% and 6%. Another thing is that circumstantially and also with uncertainty, because it is not clear how much longer this is going to last, we are going to be a few points above the range”, affirmed to the program Who is who of Diamante FM and channel 5.
A few weeks ago during the lunch of the Association of Marketing Directors, the head of the central had recognized that the 3.7% target for 2024 was “very ambitious” and that convergence towards those targets will be slower than desired.
Salaries and indexation
This week The Observer reported that most of the tables in the commerce sector that were authorized to negotiate advancing the payment of the corrective for past inflation, as the government suggested, will not do so. This is by decision of the employer sector.
Asked if that decision can “decompress” inflation, the head of the BCU considered that it can have an effect, but that “it could be one tenth”. In addition, Labat recalled that most of the salary agreements in the private sector already provide for the correction for inflation for the middle of the year.
“There may be a minimal effect, but inflation is not at stake there. The party is thinking about inflation in the medium and long term”, he insisted.
On the other hand, he considered that “what cannot be done is to blame inflation on wages.” (…) What there is is an indexation that is a protection mechanism that workers have due to the loss of purchasing power and employers because they correct prices when costs increase”, he said.
“Indexing is going to be resolved once we manage to have lower inflation rates. (…) We are making monetary policy aim at that, to achieve that expectations are aligned. The vast majority of countries in the world today have a system of inflation targets, economic agents believe it and then set prices and wages, all based on that. That is what we have to aim for. One cannot ask economic agents not to protect themselves, unless one hands them tied, which I think would not be healthy”, recognized the president of the BCU.
misaligned expectations
Until now, the inflationary expectations of Uruguayan businessmen in May remained 2 points above the ceiling of the target range (6%) of the BCU for the horizon of its monetary policy (24 months), according to the latest Survey of Business Expectations released by the INE on Tuesday.
In this way, the most restrictive policy —which is being applied by the monetary authority to reduce and anchor the expectations of economic agents regarding the pace of price rises— has not yet achieved its objective.
After the last meeting of the Monetary Policy Committee (Copom), the BCU Board decided to increase the monetary policy interest rate (TPM) by 75 basis points (0.75%), up to 9.25%.
The “gradual entry path” to the contractionary phase of the monetary policy foresees at least two additional increases of 50 basic points (0.5%) in the next Copom meetings (July and August), “until the rate of interest at levels consistent with the convergence of the BCU’s projections to its inflation target,” the communiqué of the last meeting had indicated. As of September of this year, the inflationary target range will be reduced by 1 point, its ceiling, to a range of 3 % to 6%.
