Economic analysts are heading to raise their inflation forecasts for this year. Inflation climbed to 8.85% last month and a strong boost in several key international prices due to the war in Ukraine put extra pressure on the escalation of domestic prices in Uruguay.
In February, the Inflation Expectations Survey (EEI) —published by the BCU— showed that the median of analysts expected 6.65% inflation at 24 months and 7.1% by 2022, although it was published before the Russian invasion. Entrepreneurs, for their part, expect inflation of 8% by the end of this year, according to the INE.
The BCU projects inflation within the target range of between 3% and 6% at the end of 2022, more precisely at 5.8%. The regulator has been periodically raising its Monetary Policy Rate (MPR) to anchor expectations, but has so far been unsuccessful. The institution communicated last month that its way of increasing the MPR “will be reflected in the next measurements of expectationswhich will be announced on March 29.
the economist and CPA-Ferrere partner Gabriel Oddone stated that “what is clear is that inflation will not converge below 6% in the second half of the year as provided in the Central Bank scheme” and that reaching that goal, which was already unlikely before the price shock due to the war, now “it’s impossible for it to happen”.
In view of the current scenario, Oddone told Channel 12 that Monday that in CPA-Ferrere They currently estimate thatInflation “will be above 8% at the end of the year“.
In the same sense, both Exante, Cinve and Grant Thorton are working on raising their inflation forecasts for 2022, they informed the specialized portal Bloomberg Line. The general manager of the banco Santander, Gustavo Trelles, He also told that medium that he now sees “much greater and more difficult” than before to the challenge of inflation for the BCU. They all mentioned thathe unforeseen international situation made them revise their previous issues.
Santander and the three consultancies —as well as CPA-Ferrere— are among the 27 organizations and economists surveyed monthly by the Central Bank to prepare its survey of expectations.
Why were forecasts raised?
Oddone explained that “the figure for February (8.85%) was high” due to climatic phenomena that mainly influenced fruits and vegetables and to that now “all the international event” of great pressure on prices that affects the Uruguayan economy.
Among the products that appreciated considerably due to the conflict in Ukraine, the most important for the pockets of Uruguayans are crude oil —which reached maximums since 2008— and the wheat —which reached record values—. “Only baked goods are 5% of the basket and fuels are 4%” of family consumption, commented the economist in this regard.
The analyst’s concern responds to the fact that the short-term increases “get into the heart of inflation” by perpetuating itself through indexation mechanisms present in the country through various forms, such as parameters of fuels and transport or salaries.
Oddone argued that to deal with inflation, The BCU’s policy of raising rates “has medium-term effects” but, for this moment, the government has at its disposal “very limited and short-range measures” such as “administrative or price agreement measures.”
For the CPA partner, a good part of the agenda proposed by the authorities to lower the acceleration of prices was not implemented due to various circumstances —such as the pandemic or the moment of current price pressure—”Does the country have a consistent and conceived disinflationary program in process that also has effects on the price level? No,” she assured.
