Cost of Living Rises; Food Prices Soar 18%

December 21, 2007

Central Bank President Francisco de Paula Gutiérrez was in a jovial mood last week when a team from the International Monetary Fund handed the Costa Rican economy a clean bill of health.

“The level of growth in the country’s economy converges with what we call the level of potential growth,” said IMF team leader Dominique Desruelle, whom Gutiérrez had instructed reporters to ask “all the difficult questions.”

Although most economic indicators by year’s end have turned positive, at least one has dogged the nation’s technocrats: The consumer price index.

The cost of goods and services has gone up by double digits again this year, and is even slightly higher than last year’s rate.

By November, inflation for the last 12-month period had reached 10.09%, one of the highest rates in Latin America, outstripped only by Venezuela, Bolivia, Nicaragua and Paraguay.

Inflation has hit Costa Rican residents right in the gut, as the price of food alone has gone up 18% in the last 12 months.

The basic food basket – an index that compiles the prices of 10 staples, such as cereals, beans, sugar and dairy – is up 13.3% percent so far this year.

That’s a sharp acceleration of a trend that the country has been seeing since at least 2004, when the National Statistics and Census Institute (INEC) began tracking the index.

The prices of alcoholic drinks, education and eating out also have seen double-digit growth this year.

Gutiérrez said, however, there’s not much that can be done to rein in some of the price increases as much of the inflation was due to external factors.

The international price of wheat, for example, was up 61%. Soy was up 60% and rice was up 25%. Corn’s price was also up, by 17% or more, which had a ripple effect on meat prices because agro-industrial cattle, hogs and poultry are usually fed corn.

The price of oil, meanwhile, hovered close to $100 a barrel this year, causing the National Oil Refinery (RECOPE) to hike diesel prices by almost 41% in less than 12 months.

“These elements are separate from the Central Bank’s policy,” Gutiérrez said.

Gutiérrez noted earlier this year that when volatile commodity prices are removed from the consumer price index, Costa Rica’s real inflation has actually dropped to about 8% – the goal the Central Bank set out for itself at the beginning of the year.

The medium-term trend – and the objective of the Central Bank’s recent adjustments to the exchange rate – is toward a lowering in that inflation rate, Gutiérrez said.

“We’ve seen very important steps in the monetary policy… that have allowed the reduction of the underlying inflation rate,” said Desruelle, the IMF representative.

The change in the exchange system in 2006 increased the risk of investing in the Costa Rican currency to discourage large currency investments from abroad that were pushing inflation (TT, Oct. 20, 2006).

Gutiérrez told business Web site Capitales.com that the Central Bank will continue on this path toward reducing inflation in the coming year.

For the foreseeable future, however, Costa Rican consumers remain at the mercy of external forces, such as the prices of petroleum and food.

The Basic Cost of Eating

The monthly per-capita cost of food staples has risen steadily in Costa Rica.

’04:      15,944 colones

’05:      19,155 colones

’06:      21,276 colones

’07:      24,957 colones

Note: Figures are from November of each year.

Source: National Statistics and Census Institute.

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