Central Bank Downplays
Inflation Concerns
Central Bank president Francisco de Paula Gutiérrez yesterday downplayed growing concerns over inflation and the increase in the prices of several products reported in recent months.
(Click for more)

Mass Held in Memory
Of Madrid Bombings
President Abel Pacheco, Spanish Ambassador Juan Urtasun, other ambassadors, government ministers and bishops from the Costa Rican Episcopal Conference and approximately 800 other people packed the Cathedral of San José to capacity yesterday for a mass in memory of the victims of last week’s bombings in Madrid, Spain.
(Click for more)

Police Seize 300 Kilograms
Of Cocaine at Peñas Blancas
Costa Rican Drug Control Police (PCD) announced yesterday they had discovered and seized 300 kilograms of cocaine from Guatemalan truckers at the northern border station of Peñas Blancas.
(Click for more)

Solar Fiesta
Exhibit of tools that operate with solar energy, including light systems, motors, toys, etc., through Sunday, Casa del Sol, Santa Bárbara de Santa Cruz, Guanacaste. Info: 681-1015.

International Mountain Bike Race
Twelve-hour international mountain bike race, Sat., March 20, 9 a.m.-9 p.m., Oikaumeme Camp, behind Recope, Ochomogo, Cartago. Info: 235-2638.

Fishing Tournament
Costa Rican Classic Fishing Tournament by Boomer Esiason Foundation, today through Monday, in Quepos, Info: Tico Travel, 1-800-493-8426.

Central Bank Downplays
Inflation Concerns
By Fabián Borges
fborges@ticotimes.net

Central Bank president Francisco de Paula Gutiérrez yesterday downplayed growing concerns over inflation and the increase in the prices of several products reported in recent months.

“We are not in the middle of an inflationary process that affects the whole of the economy,” Gutiérrez explained. “Instead, we are witnessing an increase in the prices of very specific products.”

After monitoring recent increases in prices of several commonly used goods and services, the Central Bank concluded the price increases are, for the time being, isolated and unrelated cases and not a sign of a widespread increase in inflation.

Inflation concerns have been sparked by recent increases in the monthly Consumer Price Index (CPI) – a measure of the average change over time in the prices paid by Costa Rican consumers for a market basket of basic consumer goods and services.

In the past five months, the CPI has registered a 7.02% increase in prices (TT, March 12). This figure is worrisome, analysts say, considering the country has been averaging 10% inflation a year during the last decade, and the Central Bank had targeted 9% inflation for this year (TT, Jan. 16).

However, the Central Bank’s primary inflation indicator, the Underlying Inflation Index – a more technical inflation measure used to measure inflationary trends that excludes volatile products prone to sudden increases and sharp drops – remains on track, having grown only 4.44% over the last five months.

Essentially, this means the increase in the CPI has been caused by increases in the price of oil and agricultural products such as eggs, rice and potatoes, a worldwide shortage of steel (TT, Feb. 27, March 12) and increases in electricity and water rates. These price increases have not, however, spread throughout the rest of the economy and are therefore not part of a larger inflation trend, Gutiérrez said.

Even if the CPI globally reports an increase in inflation, the prices of most products have not risen faster than the Central Bank projected. Other important variables such as demand for credit and import growth are also stable, Gutiérrez explained.

For the moment, the Bank is not overly concerned about inflation. However, it will keep a close eye on changes in prices over the coming months. Particular attention will be paid to the price of oil, which on Wednesday rose to $38 a barrel – close to pre-Iraq war levels.

“What we’re interested in is the pace at which prices are increasing,” Gutiérrez explained. “It doesn’t worry us if, as a result of the increases in the price of specific products reported during the first months, we are unable to meet the 9% inflation target we had expected between last December and next December.

“If what we see is an increase in the rate of inflation that begins to accelerate the growth of all prices, we’ll be forced to take corrective actions,” he warned.

If inflation does become a threat, the Central Bank will attempt to curb inflation by restricting consumer demand for goods and services. This would entail restricting credit (raising interest rates) and/or increasing the rate of the colón’s devaluation against the dollar. Both measures would slow the economy’s growth, the Central Bank president said.

He said the Central Bank remains committed to keeping the rate of inflation at 9% in 2004 and will do what is necessary to make that happen.

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Thursday October 27, 2005