Inflation in Uruguay: Analysts again adjust their year-end expectations upward

RIO DE JANEIRO, BRAZIL – Uruguayan analysts have again adjusted upward their inflation expectations for the end of the year. This is according to the latest inflation expectations survey published Tuesday by the Central Bank of Uruguay (BCU).

The median respondent now expects the consumer price index (CPI) to be 8.5% in December. An adjustment had already been made to 7.9% in the March survey, compared to 7.1% according to the median of the February survey.

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Both analysts and the central bank expect inflation to continue to rise at least until the middle of the year and then to moderate. The consumer price index was 9.38% in the 12 months through March, up from 8.85% year-on-year through February. In January, the indicator was still at 8.15%.

The gradual upward revision of market participants’ expectations is taking place against the backdrop of rising international commodity prices and an additional shock from the war in Ukraine. But it is also taking place while the BCU is processing an increase in the reference rate since August last year, which has intensified over the past month. Following the April 7 meeting of the Monetary Policy Committee (Copom), the BCU raised the rate by 125 basis points to 8.5%, up from 75 basis points previously. The next Copom meeting will be held on May 17.

The National Institute of Statistics (INE) will publish on Friday, May 6, the Inflation Expectations Survey conducted among businessmen, which in its latest editions set the year-end indicator at 8%.

Economist Aldo Lema of Vixion Consultores explained that the increase in expectations occurred “mainly in 2022”, since in the following two years “the increases were marginal”, as he shared via his Twitter account.

Thus, the expected inflation for December 2023 is 7% and for the last month of 2024 is 6.60%. In the March survey, the expectation was 6.85% for the end of next year and 6.5% for December 2024.

The head of economic analysis at consultancy CPA Ferrere, Nicolás Cichevski, highlighted that expected inflation for the next 24 months (April-March 2024) fell for the first time since October, from 6.95% to 6.88%.

DOLLAR OUTLOOK

Analysts expect the dollar to end the year at $42.98, according to the median April economic expectations survey, down from $44.5 in the March survey.

On Monday, the dollar broke a series of eight downtrends in Uruguay that had taken it near $40. On Monday and Tuesday, the U.S. currency recovered and closed at $40.91, up 0.51% from the previous day. In any case, the dollar in Uruguay has fallen 8.47% against the greenback so far this year.

The Electronic Exchange of Uruguay (Bevsa) published on Tuesday its monthly bulletin for the month of March. “At the end of March, the spot dollar stood at 41.17 dollars, a significant drop of 3.13% from February’s closing rate (42.5 dollars). After closing 2021 with an upward trend and registering an annual increase of 5.3%, the exchange rate accumulated a decline of 7.9% in the first half of this year,” according to the analysis at the end of the previous month.

According to the April Expectations Survey, economic agents expect the U.S. currency to be at $45.20 at the end of 2023 and $47.80 in December 2024.