Prices of basic consumer products continue to put pressure on Costa Rican households

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By LatAm Reports Editor

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 help Costa Rican society have a better understanding of how the evolution of economic variables such as inflation, interest rates and exchange rates are having an impact on their well-being.  

Luis Vargas, an economist at the College of Economic Sciences, explained that in developing this analysis – a first finding that stands out is, two years after the onset of the inflationary shock,  the perception of Costa Rican households is that the cost of living continues to pressure them is explained by significantly higher prices in basic consumer products, particularly food.  

This analysis highlights some fruit plants such as: tomato, sweet chili, cucumber and chayote, whose prices have doubled in up  to (96.7%).  Other daily consumer products, which also continue to have significantly higher prices than observed before inflationary shock, are eggs  (-20.1%),  baby formula milk  (-17.9%),  liquid milk  (-16.4%)  and coffee  (16.2%).

For its part, the married man, who is considered to be a basic consumption when incorporating several food products for ordinary consumption, also continues to have a   price 9.1% higher.  

In other words,  after almost two years after the onset of the inflationary shock, Costa Rican households continue to face a significant loss of purchasing power in food present at their table daily.

Housing

Another result that generates concern is the increase in the cost of housing. As the results of the analysis show, the price of house rent has increased by  8.1%  over the past 24 months. In addition, interest rates on housing credits have increased by 2.8 pp (-45%), which, together with the gradual increase in Value Added Tax (VAT) for the construction sector, is associated with a 10% decrease in the intention to build housing during 2023.

Exchange rate

A third topic analysed by the College are the implications of the evolution of the exchange rate on export earnings of goods and services. The past 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 shown a strong performance with growth above double digits. However, this has occurred in a period of steep inflation in the prices of production inputs and, in recent months, with an appreciation of the colon. This appreciation means that every dollar exported translates into fewer colones, which is associated with lower profit margins in 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 on the value exported in colons of -6,7%. In addition, as an example, if the value of the exchange rate had been maintained at the end of 2022 (-592 per dollar), the export value of goods and services in colones would be respectively 9.6% and 6.4% higher.

 The College of Economic Sciences of Costa Rica continues to express its concern for the quality of life of Costa Rican society. For this reason, it carries out this analysis that helps to understand why, despite the fact that the CPI has shown a decrease in recent months, Costa Rican households continue to face pressures from inflation in everyday consumer products such as food and housing. In addition, seeking to help understand the implications of the increase in interest rates and exchange rate volatility, Vargas said.  

Once again, the College calls on and emphasizes the need to design and implement a national strategy for creating more and better jobs.

Do we call on the competent authorities to implement policies aimed at closing the gender gap, more opportunities for young people and directly benefiting all workers, inside and outside the GAM. As a College we will continue to bet on the design and implementation of a precise economic policy, to mitigate the effects of inflation on Costa Rican households, he concluded.

This article has been translated from the original which first appeared in El Mundo