SUMMARY COMMENTS FOR SEPTEMBER 2023
In the recently ended month of September, the evolution of the indicators that we have been following was the following:
The Country Risk of Uruguay (measured by the UBI Index published by República Afap) as of 09/30/2023 shows a value of 80, which represents an increase in the month of 8.11%. Likewise, when considering the last 12 months, this index decreased by 36.00%, despite the emerging volatility of international geopolitics (as an example, we can mention the war situation in Eastern Europe), and the internal climate. , which tends to increase protests (for example, the water deficit that affected the country, altering the quality of drinking water, the approval of educational and social security reforms, Accountability) while in the year it increased 14.29%.
Regarding inflation , the data for September 2023 was known. It showed a variation of 0.61% in the month, (in the same month of the previous year the variation was 0.84% positive), while the accumulated variation of the last twelve months reached 3.87% (the minimum since 2004), decreasing (confirming the trend that was barely interrupted in April, starting in September 2022) with respect to the previous month (as of September 22 the accumulated was 9.95%; as of October/22, 9.05%; as of November/22, said accumulated was 8.46%; as of December/22 it was 8.29%; as of January/23 it was 8. 05%, in February/23 it was 7.55% and in March/23 it was 7.33%; in April/23 it was 7.61%, in May/23 7.10%; in June/23 5.98% ; in July/23 4.79%; in August/23 4.11%), so it remained within the target range (3% – 6%) for the fourth consecutive month, which brings it closer to the floor than the ceiling of said range. Likewise, this figure constitutes the lowest level since August 2005 (at that time the accumulated variation for twelve months was 3.42%). Likewise, in September 2022, said twelve-month accumulated variation was 9.95%, which shows inflation now on a moderately downward trajectory also when viewing said comparison (remember that the volatility of the international economy during the year generated a phenomenon world inflationary). As is known, the war situation in Europe increased inflationary tensions in the world economy, to the point that the Federal Reserve, in order to control inflation in the US (levels similar to those in Uruguay, the highest recorded in the last forty years) had to repeatedly increase the reference interest rate. Similarly, the Central Bank raised the reference rate with the same objective, despite the fact that the inflation expectations of economic agents show a certain rigidity, due to the international situation. However, in both cases, in view of the results obtained in the anti-inflationary fight, a slow reduction in monetary policy rates began to take effect, to the point that at the previous meeting (August) of the Copom (Committee Monetary Policy), it was decided to reduce the monetary policy rate by 75 basis points, taking it to 10.00%, from the 10.75% it was at until that moment. At the last Copom meeting, held on Thursday 10/05/23, this rate was reduced again, this time by 50 percentage points, taking it to 9.5%. So far this year, the inflation recorded is 4.21% (a year before, it was 8.65%), which represents the lowest increase in nine months since 2001, when inflation was recorded in that period. of 2.93%.
When viewing the different components of the CPI, it can be seen that prices linked to transport continue to have a strong downward impact, with a decrease of 3.5% annually. Although fuel prices rose in September, they remained at similar levels to those of a year ago, while motor vehicles and spare parts (which are quoted in dollars) fell in line with the fall of the US currency.
Similarly, the low increase (1% annually) in the prices of household items, where the majority of household appliances are imported, and are sold in dollars, also influenced the decrease in inflation, being also affected by the weakness of said currency.
The very limited increase in the prices of communication services (2.2% annually) also had an impact; while prices in restaurants and hotels registered the largest increase in the last year (8.1%), due to it being a recovery after the sharp falls and stagnation caused by the pandemic.
Finally, one of the most important components is the price of food, which had an average annual increase of 4.9%, after having had rates higher than 10% for several months. The drop in food inflation is explained by the decrease in important components, such as meat, and by the normalization in the price of several fruits and vegetables, which had had exceptionally high levels in previous months caused by the drought.
The variation registered in the month was lower than expected by analysts, who expected an increase of 0.5%; On the other hand, the real variation was 0.61%.
Analysts expect that inflationary tensions will ease in the coming months, which is being confirmed by the facts. Annual inflation of 6.59% is expected for 2023, although the government guideline in the Accountability was 6.7%.
Another relevant aspect of the drop in registered inflation impacts salary agreements, since it reduces salary correctives for inflation in current agreements, while it will probably incorporate the 6% guideline for the round of Salary Councils that will be held. is in development. At the same time, it represents a significant increase in real wages and the purchasing power of wages.
Regarding the exchange rate , the value of the interbank dollar bill as of 09/29/23 was 38.556, which implies a variation of 2.56% in the month and accumulating a decrease of 7.62% in the moving year, as we already mentioned. when dealing with the issue of inflation, while in 2023 a drop of 3.78% is recorded. It is worth mentioning that the monetary authority should not have intervened in the exchange market during the month to influence the values registered in the North American currency, except for what has already been commented regarding the monetary policy interest rate, which is used as an instrument to fight inflation.
When considering international arbitrations , it was observed that the Euro had a negative variation of 2.48% in the month (it weakened against the dollar, also showing an increase of 7.85% in the moving year); The Argentine Peso showed practically zero variation in the month (interrupting its previous trend, only interrupted in November/22, of strong weakening against the dollar; product of the electoral climate that the country is experiencing, especially in light of the results recorded in the PASO elections), while the Real had a variation of 1.46% (a weakening against the dollar, for the third consecutive month, breaking the sequence of the previous four months). In summary, in the month of September the dollar strengthened against the three currencies analyzed. Meanwhile, in the moving year, the dollar strengthened against the Argentine currency (137.57%, in the official market, since the blue dollar more than doubled, reaching over 800 pesos), while which fell against the Euro (7.85%) and the Real (6.35%). During 2023, the dollar strengthened 1.14% against the Euro, strengthened 97.58% against the Argentine Peso and fell 4.99% against the Real.
In another order, various data regarding economic activity were known, of which we comment on the most relevant:
The fiscal deficit, in the twelve months to August, remained at the same level as in July, 3.9% (again it increased by one tenth of a percentage, which indicates a deterioration in public accounts) of GDP, according to published data. by the MEF. However, in the recently approved Accountability, it is expected to drop, and close the year at 3.2%, and that in 2024 it will drop again, to 2.7% of GDP (although higher than the 2.5% initially estimated). .
The labor market in August showed a slight deterioration, deteriorating the unemployment values (8.2%) exhibited in July, when the unemployment rate was 7.8% (it returned to the value it showed in June/23) , remaining in a better situation than the pre-pandemic. The activity rate stood at 63.5% and the employment rate at 58.2%, both at similar levels compared to June (63.5% and 58.6% respectively).
The labor market in July was stable, once again improving the unemployment values (7.8%) exhibited in June, when the unemployment rate reached 8.2%, remaining in a better situation than the pre-pandemic. The activity rate stood at 63.5% and the employment rate at 58.6%, both increasing slightly compared to June (63.4% and 58.2% respectively).
As of August, the IMS (Average Wage Index) had an interannual variation of 8.87%, higher than inflation, which shows real salary growth, although it has not yet fully recovered to pre-pandemic levels, while that the monthly variation was 0.36%, which implies an accumulated variation in the year of 8.29%. With this, added to the effect of the fall in inflation, there is a growth in real salaries of 0.17% in the month, 4.55% in the January-August period, and 4.56% in the year mobile to August.
The DGI published the collection report for the month of August/23, which shows a new decrease in real terms, although it grew in current terms.
Indeed, net collection (discounting tax refunds) shows an interannual variation, in real terms, of -3.4%.
Meanwhile, gross collection at current prices shows a variation of 0.5% in August. When discounting the inflationary effect, the year-on-year variation in collection was -3.5%.
Consequently, in the first eight months gross collection in real terms fell 2.1%.
Clearly, in addition, the drop in revenue is directly linked to the increase in the fiscal result mentioned above.
Regarding Foreign Trade , Uruguay XXI issued its report corresponding to September 2023.
In it, based on a report from the Union of Exporters of Uruguay (UEU), there was a strong contraction in exports in 2023 (not including free zones), mainly due to lower international prices, although there was also a decrease. in the physical volumes exported.
Applications for the export of goods (including free zones) fell 9% in September compared to the same month in 2022; which implies that exports of goods accumulate thirteen consecutive monthly interannual declines. In the accumulated of the year, the drop in exports is 18% compared to the same period of the previous year.
Once again, the main impact of the continuous drop in export values comes from the drop in soybeans (mainly due to the effects of the drought) and beef, although there was also a decrease in items such as cellulose and dairy products (in these last three cases the explanation is the fall in international prices), which are not compensated by the increases in sales of rice, wood, malt, meat by-products, vehicles and live cattle.
The ten most sold products abroad were headed by cellulose, followed, in that order, by beef, dairy products, beverage concentrates, rice, meat by-products, vehicles, malt, wood, and live cattle.
Meanwhile, when mentioning the main destinations, in September, the ranking of exports of goods is headed by Brazil followed by China, the European Union, the United States, and Argentina.
An inverse phenomenon is observed when considering service exports , which grew substantially in the January-September period, compared to the same period of the previous year.
The main sector involved turned out to be inbound tourism, which more than doubled what was done in 2022, exceeding 50% of the total exported services.
The rest of the sectors also grew, although at a lower rate: Telecommunications and computing (includes software) and other business sectors. Between these last two sectors they cover a third of the export of services.
