QCOSTARICA — The College of Economic Sciences of Costa Rica carried out an analysis of the evolution of the Costa Rican economy after the inflationary shock that began in February 2022.
This analysis seeks to contribute to Costa Rican society by giving a better understanding of the evolution of economic variables and how inflation, interest rates, and exchange rates are affecting their well-being.
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Luis Vargas, economist at the College of Economic Sciences, explains that when developing this analysis, the first finding that stands out is how, two years after the beginning of the inflationary shock, the perception of Costa Rican households is that the cost of living continues to pressure them.
“It is explained by the significantly higher prices of basic consumer products, particularly food,” said Vargas.
This analysis highlights some fruits and vegetables such as tomato, peppers, cucumber, and chayote, whose prices have doubled by up to (+96.7%). Other daily consumption products, which also continue to have significantly higher prices than those observed before the inflationary shock, are eggs (+20.1%), baby formula (+17.9%), milk (+16.4%), and coffee (+16.2%).
For its part, the “casado”, which is considered basic consumption as it incorporates various food products for ordinary consumption, also continues to have a 9.1% higher price.
In other words, almost two years after the beginning of the inflationary shock, Costa Rican households continue to face a significant loss of purchasing power for foods present on their tables daily.
Cost of housing
Another result that generates concern is the increase in the cost of housing. As the results of the analysis show, the price of housing rentals has increased by 8.1% in the last twenty-four months. Additionally, interest rates on housing loans have increased by 2.8 pp (+45%), which, added to the gradual increase in the Value Added Tax (VAT) for the construction sector, is associated with a decrease of 10 % in the intention to build a home during 2023.
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Exchange rate
A third topic analyzed by the College is the implications of the evolution of the exchange rate on income from exports of goods and services. The last two years have been marked by high volatility in the price of the colon against the United States dollar.
In terms of exports, the country has presented an outstanding performance with growth above double digits. However, this has occurred in a period of pronounced inflation in the prices of production inputs and, in recent months, with an appreciation of the colon.
This appreciation means that each dollar exported translates into fewer colones, which is associated with lower profit margins on exports of goods and services. The net effect after considering the evolution of producer prices and the appreciation of the colon results in a potential net loss in the exported value in colones of -6.7%.
Additionally, as an example, if the value of the exchange rate at the end of 2022 had been maintained (¢592 per dollar), the exported value of goods and services in colones would be 9.6% and 6.4% higher, respectively.
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Read more: Big Mac index: Costa Rica colon is the sixth most overvalued currency in the world
“The College of Economic Sciences of Costa Rica continues to express its concern for the quality of life of Costa Rican society. Therefore, it carries out this analysis that helps to understand why even though the CPI has shown a decrease in recent months, Costa Rican households continue to face pressures from inflation in daily consumption products such as food and housing. Additionally, trying to contribute to understanding the implications of the increase in interest rates and volatility in the exchange rate,” said Vargas.
Once again, the College calls and emphasizes the need to design and execute a national strategy for the creation of more and better jobs. We call on the competent authorities to implement policies aimed at closing the gender gap, more opportunities for young people and that directly benefit all workers, inside and outside the GAM.
From Revista Summa
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