Tuesday 7 February 2023

High prices and low consumption capacity for Costa Ricans: the causes

Inflation is hitting many countries, Costa Rica is no exception

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7 February 2023 - At The Banks - BCCR

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QCOSTARICA – Costa Ricans must take more money out of their pockets to buy goods and services, while the country experiences the highest inflation in the last ten years.

Costa Ricans must take more money out of their pockets to buy goods and services. La Republica

The same phenomenon is seen in other countries, the United States for its part is reporting the highest inflation since the 1980s.

These are the main causes of the increase in the prices of products and services.

  • The conflict between Russia and Ukraine increases the price of crude oil and other inputs.
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    The conflict is exacerbating the upward pressure on oil prices, while Western Europe increases its purchases of crude oil to replace the gas that it can no longer buy due to the embargo on Russian exports.

    Between January 2021 and May 2022, Costa Rica’s oil bill increased by more than $1,100 million, since the price of a barrel is almost $120, double what it was a year ago.

    The conflict has also increased the price of other raw materials.

  • Backlogs in supply chains. The cost of many of the intermediate and consumer goods has grown, especially due to the low level of production after the impact of the Covid pandemic, as well as in global transport.

    The low production has been a global phenomenon, even the blow has been strong in China, one of the main industrial producers in the world.

    While the problem has been exacerbated by shipping delays, including closures at the port of Shanghai – the world’s largest – over China’s “Zero Covid” policy in recent months.

  • Excess liquidity. Prices increase given the amount of money injected into the economy of various countries to mitigate the impact of the pandemic.
  • Opening of Costa Rica to the global economy. Costa Rica relies heavily on trade with other countries where prices are rising – it’s called imported inflation.
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