MONTEVIDEO, Feb 13 (Reuters) - Uruguayan President Jose Mujica said on Thursday that annual inflation would likely remain between 7 and 9 percent for the rest of his government, above the government's target maximum, although he believes inflation to be under control.
The rise in consumer prices, one of the biggest headaches for the small South American country, reached 8.5 percent last year, the third year in a row it has been above the target range of 4 to 6 percent and the third highest on the continent, after Venezuela and Argentina.
"I don't think we can return to 4 or 5 percent," Mujica told Reuters in an interview at his house on the outskirts of the capital Montevideo.
"But neither will we pass the current limit," said Mujica, whose term ends in March 2015. Inflation will be "between 7 and 9 percent," he added. "I think we can be there, pivoting, because we have resources we can use."
The government is planning to widen its target range on inflation to between 3 and 7 percent later this year. It could also cut state-run utility tariffs to contain price rises if needed, Mujica said.
"I'm not saying we will do that, but I am saying that we have those tools. We are not a government that is unarmed in that way. If we need to we can throw all we've got at it."
Inflationary pressure was "a consequence of the success" of the Uruguayan model, he said.
"Maybe the increase in our productivity and other factors at play are not moving at the same speed. But I think it's manageable."
Argentina, Uruguay's larger River Plate neighbor, is struggling with inflation that reached over 25 percent last year and is likely to have risen further after a currency devaluation in January.
"The difficulties of our relationship with Argentina hurt us," said Mujica. "Argentina is a very important country for Uruguay, not just for our exports but for everything put together."