Central Bank Anticipates Inflation Greater than 10%

July 8, 2005

THE Central Bank has abandoned itsgoal of 10% inflation for 2005, bankpresident Francisco de Paula Gutiérreztold the press Tuesday. He said high oiland coffee prices are to blame and that heis now aiming for a 2005 inflation rateless than 13%.Gutiérrez said the June inflation rateof .46% is a good sign of what is tocome; he expects rates to continue to falland is now hoping to reach 10% over thenext 12 months, instead of by the end ofthe year.While inflation is down, the overallrate of 6.86% for the first semester ishigher than the same period in 2004(6.26%) and 2003 (4.34%), according tothe National Statistics and CensusInstitute (INEC).Inflation over the last 12 months wasreported at 13.76%. Annual inflation in2004 was 13.13%.“External factors – oil prices, primarymaterial prices, coffee prices – haveaffected us a lot in the first half of theyear,” Gutiérrez said.While other countries, particularly inCentral America, have also been hit bythese external factors, the effects aremaintained for a longer period in CostaRica, according to the bank president.“We adjust salaries every six monthsand change the exchange rate every day,so external forces have a longer lastingeffect,” he said. “If coffee prices hadn’tincreased, we would have had an inflationof 5.5% (down from 6.86% over past sixmonths) and if we hadn’t had the impactof gasoline, we would be talking of4.3%,” he said.Neither coffee nor gas prices rose significantlyin June, which is why inflationwas lower than in previous months,Gutiérrez continued.If Costa Rica wants to reduce itsinflation in the long term and match therates of countries like Chile and Mexico,it must resolve the country’s problemswith debt and Central Bank losses, saidGutiérrez, who cited the passage of thePermanent Fiscal Reform Plan as fundamentalin this goal.When the Central Bank set its 2005target inflation at 10% in January,Gutiérrez said controlling inflation wasthe bank’s top priority this year (TT,Jan. 21).

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