Nicaragua: November Cost of basic Price basket set new record

Photo of author

By LatAm Reports Editor

Amid official announcements that efforts to control inflation are performing, in November the price of the basic basket rose 173,97 córdobas, compared to the previous month and stood at 19,532.17 córdobas (about $534). This is a new historical record, the fourth reached in 2023, when it first crossed the barrier of the 19,000 córdobas. But compared to 2020, that is, the year before the onset of this inflationary crisis that many countries are already surpassing, the price of the basket accumulates an increase of 5,005.83 córdobas (about 136 dollars).

The increase was recorded despite the fact that year-on-year inflation continued to fall in November, compared to October 2022 when it peaked at 12.16 per cent. In November it was 5.65 percent, but it is still at levels higher than those before this crisis; and the result wage earners now have access to a lower percentage of the products of the basic basket.

The report of the National Development Information Institute (Inide) details that in November of the segments in which the basket is divided the one that went up in price was that of food, with an increase of 172.08 córdobas compared to October. The foods that pushed this rise were especially beef, onions and potatoes; this caused the price of the food segment that in October was 13,698.72 córdobas, to rise to 13,870.80 córdobas in November.

Food segment has skygaked

By contrast, the home-use products segment under 4.20 córdobas, from 3,608.00 córdobas in October to 3,603.79 in November; and the wardrobe segment rose about 5 córdobas, from 2,051.48 córdobas in October to 2,057.59 in November.

This new increase in the price of the basic basket implies that workers acquire a percentage each month less than the basket. For example, in 2020, according to statistics from the Central Bank of Nicaragua (BCN), the average nominal wage of private sector workers was 11,715.80 córdobas and with it you could buy 80 percent of the products from the basic basket that cost 14.526.34 córdobas. Something similar happened with Central Government workers, who in 2020 received an average nominal salary of 11.851.30 córdobas per month with which they bought 80 per cent of the products in the basic basket.

However, in November 2023, with an average nominal salary of 13,873.90 córdobas in the private sector and 13,532.60 córdobas in the Central Government, workers can only acquire between 68 and 70 per cent of the basic basket. It should be remembered that the Nicaraguan labour market is dominated by the informality that is characterized by paying precarious wages. This means that the percentage of the basic basket of 53 products, which can be purchased by most workers, is even smaller.

Rates to the basic basket don’t stop

November is the fourth record set for 2023 the price of the basic basket. The first was in January when for the first time in history it exceeded the 19,000 córdobas; in March it surpassed 19,200 córdobas; in July it approached 1,500 and now reaches 1,532 córdobas.

These constant rises reflect that inflation is not controlled. In the article Difficulties of Nicaragua’s anti-inflationary policy in 2024 published on his blog, economist Néstor Avendaño explains that despite the efforts, in November Nicaragua’s year-on-year inflation, 5.65 percent, was the highest in the Central American region, followed by Honduras with 5.04 percent, Guatemala 4.30 percent, El Salvador 2.11 percent and Costa Rica with deflation (low consumer prices) of -1.64 percent.

In Nicaragua, inflation peaked in October 2022 with 12.16 percent and according to Avendaño its year-on-year decline to 5.65 percent in November 2023, reflects that it has not been significantly cooled, as it remains above its natural level ranging from 4 to 4.5 percent.

In addition, he warns that price increases will continue as it will not be easy to lower inflation to the natural level he maintained before this crisis. According to Avendaño, it was easier to lower it from the peak it reached in 2022 to 5.65 percent in November 2023, because the fall in inflationary pressure caused mainly, globally, the solution of the problems faced by supply chains during the covid-19 pandemic; and at the local level, the reduction of the economically active population that miried and now drives the demand for goods and services with the remittances that supply the country.

Prospects are not encouraging

The obstacles faced by the authorities in lowering inflation to the natural level priced to this inflationary crisis are some risks that according to the economist, in the short and medium term, can lead to new supply shocks – which would accelerate the global inflation rate.

These threats are related to the effects that the El Niño weather phenomenon can cause in agricultural production, the escalation of migration that would continue to reduce the labor force, the war between Israel and Hamas that could raise oil and fuel prices, and the global geoeconomic fragmentation that would modify the current intermediate and final goods distribution chains, Avendaño details.

For its part, the International Monetary Fund (IMF) projects that global inflation will be reduced at a steady pace of 6.9 percent in 2023 and 5.8 percent in 2024. Underlying inflation is projected to decline more gradually, while, in most cases, inflation is not expected to return to the target level until 2025, the agency says.

This article has been translated from the original which first appeared in La Prensa NI