The Central Bank of Uruguay (BCU) projects a scenario of upward inflationary risks, although it assures that they are 'globally balanced' in the monetary policy horizon.
The Central Bank of Uruguay (BCU) presented its latest Monetary Policy Report (IPoM), in which it acknowledges that inflationary pressures have intensified in the short term, but maintains confidence that inflation will converge towards the target of 4.5% in the monetary policy horizon. The agency warns of a 'high uncertainty' due to external factors such as the conflict in the Middle East and the climatic phenomenon El Niño.
Factors pushing inflation upward in Uruguay
The BCU identified several elements that are driving inflation upward in the short term. Among them, the rigidity in non-tradable inflation stands out, meaning those goods and services that are not traded internationally, such as some local services. There is also concern about the recent acceleration of core inflation, which excludes volatile components such as food and energy.
Another key factor is the climatic risk associated with the El Niño phenomenon, which could bring droughts to some areas and heavy rains to others in Uruguay, affecting the agricultural sector, the main driver of the local economy. Climate alarms have increased due to the possibility of a highly intense 'Super Niño'.
Additionally, the BCU points to the possibility of episodes of financial volatility linked to the geopolitical environment, especially the war between the United States and Iran and the peace negotiations in the Middle East, which continue without concrete progress.
Factors that compensate and balance the inflationary outlook
Despite the upward pressures, the IPoM also lists a series of factors that operate downward and help balance the risk assessment. Firstly, inflation expectations remain aligned with the BCU's target, indicating that economic agents trust the monetary policy.
The output gap remains slightly negative, meaning the economy is operating below its potential, reducing inflationary pressures. The wage agreements in place maintain a nominal reference consistent with inflationary convergence, and the pressures associated with the energy shock are considered transitory.
Moreover, the BCU notes the possibility of a global weakening of the dollar and further moderation of international energy prices and other commodities, which would help alleviate imported inflation.
Implications for the Uruguayan economy and consumers
The scenario described by the BCU suggests that, although inflation may temporarily deviate from the target in the coming quarters, the long-term trend points towards convergence to 4.5%. This means that Uruguayan consumers may face price increases in the short term, especially in services and food, but without expecting inflationary surges.
For businesses, particularly in the agricultural sector, climatic risk is a variable to monitor closely. Droughts or heavy rains could affect production and costs, impacting final prices. On the other hand, the stability of expectations and the monetary policy aimed at price stability provide a framework of certainty for investment.
The BCU concludes that the balance of risks for inflation is 'balanced' in the policy horizon, supported by anchored expectations, solid macroeconomic fundamentals, and a monetary policy focused on preserving price stability. The next IPoM will be published in the second half of 2026, where projections will be updated based on the evolution of external and internal factors.
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