Friday 27 January 2023

Inflation falls in July and changes the trend of the last four months

Last month the interannual variation was 1.44% influenced by the reduction in the cost of electricity

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27 January 2023 - At The Banks - BCCR

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QCOSTARICA – Inflation, measured by the consumer price index (CPI), fell in July and changed the upward trend that it had maintained for the last four months.

Electricity is the fifth item with the greatest weight in the price indicator because it is important in the household budget. Photo: Eyleen Vargas

As published this Monday, August 9, the National Institute of Statistics and Censuses (INEC), the interannual variation (of each month with respect to the same month of the previous year) of the consumer price index, in July, reached 1.44%.

Since last March this indicator had been increasing, reaching 1.91% in June, which is very close to the lower limit of the goal of the Central Bank of Costa Rica (3%, with a deviation of one percentage point up or down).

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Only in the month of July, the indicator fell 0.21% compared to June; and the accumulated for the year reached 0.55%.

Last month, the goods and services that showed the greatest negative effect (due to the change in their price and the importance in the household budget) are: electricity, tomatoes, and airfares. On the other hand, oil, new cars, and beefsteak were among the main ones with the greatest positive effect.

The cost of electricity fell 5.81% in July. Also noteworthy is the reduction in airfare with a drop of 13.80% and potatoes with a fall of almost 10%, while the cost of new cars rose 0.91%.

Nelson Castillo, in charge of the indicator at the INEC, explained that in the case of electricity it is important to note that it is the fifth item with the highest weight within the CPI (because it is important in household spending), therefore the price decreases registered will have a very important influence on the results.

In total, in July, of the 289 goods and services that make up the index, 34% decreased in price, 53% increased and 13% did not show variation.

With this result, inflation remains outside the target range of the Central Bank; However, in an interview, the president of the Central Bank, Rodrigo Cubero, explained that the focus of monetary policy is the projection of inflation in the next 24 months.

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“The Central Bank formulates its monetary policy prospectively, and the guide for monetary policy rate decisions and other monetary policy decisions will be the inflation projection for the next 24 months; that is the main instrument that the Central Bank uses,” explained Cubero.

In many countries there is an acceleration in inflation as a result of the reactivation in the demand for goods and services brought about by the advance in vaccination, which has led some central banks to increase their monetary policy rates when the indicator you have crossed your goals.

Despite the above, in Costa Rica, Cubero has said that the focus of the monetary policy by Costa Rica’s Central Bank is the projection of inflation and not interest rate differentials.

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