Uruguay’s inflation has fallen to a level not seen since the Eisenhower era. The consumer price index rose just 3.11% in the twelve months through February, down from 3.46% in January and 5.1% a year earlier, according to data released Wednesday by the National Statistics Institute. It is the lowest annual reading since August 1956, when inflation came in at 2.72%, and extends a remarkable run of 33 consecutive months within the central bank’s 3–6% tolerance band.
The monthly variation in February was 0.35%, well below the 0.92% recorded in January, when seasonal tariff adjustments had temporarily pushed the index higher. In the first two months of the year, cumulative inflation reached 1.27%, compared with 1.8% in the same period of 2025 — a clear signal that the deceleration is broadening across the economy.
What Drove the Numbers
The biggest upward pressure in February came from housing, water, electricity, and gas, which rose 1.52%. The main driver was a 4.06% average increase in electricity bills following the expiration of UTE Premia, a state utility discount program that had been in effect during December and January. Without that subsidy, household energy costs snapped back to normal levels.
Food and non-alcoholic beverages, by contrast, were essentially flat, with an average decline of 0.06%. Within that category, the picture was mixed. Beef prices fell sharply, with strip steak down 3.65% and rump steak dropping 3.24%. Fruit prices also declined, led by pears at 27.85% and apples at 4.70%. But vegetables climbed 2.89%, pushed higher by tomatoes, which surged 47.44%, and peppers, up 24.18% — reflecting seasonal supply patterns in Uruguay’s domestic market.
Too Low for Comfort
For most countries, inflation near 3% would be cause for celebration. In Uruguay, it is creating an unexpected policy dilemma. The central bank‘s target is 4.5%, and the current reading sits at the very floor of the tolerance range. If inflation continues to undershoot, it could affect variables that were calibrated to a higher rate. The government set its 2025 wage guidelines assuming 4.5% inflation; with actual price growth significantly below that, real wages are rising faster than planned, which could increase labor costs for employers and discourage hiring.
The fiscal implications are also real. Tax revenue collected in nominal terms grows more slowly when inflation is lower than projected, potentially widening the gap between spending commitments and actual income. The central bank acknowledged these risks in its most recent monetary policy statement, noting that high-frequency economic activity data had “surprised to the downside” and that the decline in non-tradable prices — historically the most rigid component of inflation — was particularly notable.
Regional Standout
Uruguay’s inflation performance stands in sharp contrast to its neighbors. Argentina’s consumer prices rose more than 25% in 2025, and Brazil’s annual rate hovered around 5%. Uruguay’s success in anchoring expectations reflects years of institutional credibility at the central bank and a commitment to inflation targeting that has survived changes in government. Analyst surveys compiled by the central bank project inflation of around 4.4% for full-year 2026, suggesting markets expect a gradual convergence back toward the target.
A Good Problem to Have
The challenge of inflation being too low is a rare luxury in Latin America. But for a government that built its fiscal framework around a 4.5% assumption, the gap between projection and reality creates pressure on the budget at a time when spending needs remain high. Uruguay’s central bank has already responded by cutting interest rates, but how far it can push monetary easing without reigniting price pressures or weakening the peso remains an open question.