San José, Costa Rica, since 1956

Gov’t Updates Inflation, Poverty Indicators

When a basket gets old, like anything else, you throw it out and get a new one.

That’s what the National Institute of Statistics and Census (INEC) is doing with two “baskets of goods” used as economic indicators of consumer inflation and poverty.

Renewing the two indicators – which were based on surveys from as far back as the 1980s – will give economists more accurate tools to measure the effects of inflation on consumers and on those living in poverty.

Both are politically charged issues for the Arias administration.

Last week, INEC unveiled its new canasta de consumo, or consumer price index, a listing of 292 goods. Economists eye the prices of those goods to better understand the effects of inflation on the consumer. The new basket dropped “obsolete” goods such as candles and liver and replaced them with more modern goods and services such as cellular phones and Internet.

Odette Navarro, price indicator coordinator at INEC, said goods in the consumer price index meet two criteria: they represent at least 0.05% of total household spending, and they are used by at least 5% of homes.

For the sake of comparison, the new goods are broken up into 12 groupings to better match groupings used by other countries.

For the sake of accuracy, INEC will survey twice as many businesses – more than 2,000 each month – as were surveyed with the old indicator. Navarro said the costs of expanding the survey are still unknown.

The new survey will also visit new places, such as radiology centers and movie rental stores, and will consider special offers and discounts.

On Sept. 4, the institute plans to release its first inflation indicator with the new basket.

New Basic Basket

INEC also has begun work on refurbishing the canasta básica alimentaria, or basic food basket, a smaller grouping of more needs-based goods that measures the effects of inflation on poverty.

The canasta básica is a grouping of 45 basic goods such as rice, beans, meats, fruits and vegetables, used to measure the effects of inflation on those living in poverty, according to Floribeth Méndez of INEC.

Méndez said INEC plans to update the limits of poverty and extreme poverty.

With Costa Rica becoming more aware of its growing inequalities and widespread poverty that affects the lives of nearly one in four Costa Ricans, the issue has become a political battleground.

The Arias administration’s fiscal reform plan includes attempts to redistribute wealth to the poor, among them a controversial property tax which would spend taxes collected from so-called luxury homes on building better housing for thousands living in sprawling shantytowns. His administration has also targeted poverty with educational subsidies and pension increases.

Universidad Nacional (UNA) economist Henry Mora recently questioned reports of Costa Rica’s economic growth and the government’s war on poverty.

“There has been no triumph in the strategy against poverty …if you look at the quality of growth, some things are very worrisome,” Mora said, adding that growing inequalities, high inflation and slowing formal employment growth are alarming indicators.

However, Mora celebrated news that since the beginning of the year through July, the cost of a basic basket of goods compared to inflation has dropped more than 12%. He equated the drop in the cost of a basic basket of goods to about 40,000 fewer Costa Ricans living in poverty.

If the cost of a basic basket of goods increases relative to inflation, then hypothetically, more people are living in poverty because they can’t afford the basic goods, Mora explained. If the cost of a basic basket of goods decreases, so does the number of people in poverty, he said.

Mora said if the government wants to better control poverty, it should control the prices of goods in the basic food basket.

Other economists, however, say one need only to look back a few years to see price controls don’t work. Just over a decade ago, the government controlled the prices of six different basic food items. Now, rice is the only good with price controls.

“Price controls don’t just affect people in poverty, they affect everyone who buys those goods,” said Universidad de Costa Rica professor Juan Diego Trejos, who said he thinks government-issued coupons for basic food items given to those in poverty is a more effective way to target the problem.

Pressing Issue

Though economists may disagree on the best way to target poverty, all agree it is a pressing issue.

The Household Income and Expenses Survey released in March painted a picture of a Costa Rica with growing inequalities in which the richest 20% are reaping most of the benefits of Costa Rica’s growth (TT, April 7).

In Sagrada Familia, a shantytown in southwest San José, it is hard to put a finger on any tangible effects of the recent drop in the cost of the basic food basket.

“Rice, beans, sugar and coffee have all gone up in price,” said Yamileth Suares, an 18-year-old mother living in a house with plywood walls, dirt floors and a roof with gaping holes. Outside, a sea of trash has turned her front yard into a massive dump.

For most meals, she and her 1-year-old son Jordín eat rice and beans, with the occasional piece of chicken or fried egg, she said.

“Fortunately, we’ve always been able to have food,” she said, checking on a cooking rice pot.

She would like to go somewhere better. Maybe if her husband could get a better job or maybe if she could find a job and someone to care for her son.

“Maybe, if the economy gets better,” she said.

What’s in the Basket?

In revamping the basket of goods to determine the consumer price index, the National Institute of Statistics and Census (INEC) has dropped 62 goods and added more up-to-date goods and services of consumer interest. Below are examples of items dropped and added to the list.

DROPPED: Beet, blanket, blender, broom, tapa dulce (brown sugar loaves), bucket, candle, cocoa powder, cheese, electric toothbrush, liver, matches, nylon, processed cheese, sardines, shoe polish, silk, sweet potato.

ADDED: Cable TV, car, car wash, cellular phone service, computer, computer desk, DVD, Internet service, masonry services, microwave oven, pizza, rice cooker, school transportation, tourist vacations, ultrasound, yogurt.



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