Wednesday 29 March 2023

Inflation to skyrocket between December and January because of oil

Relief in the price of goods and services that consumers recently felt would be transitory, according to experts

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29 March 2023 - At The Banks - BCCR

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QCOSTARICA – With the trade winds, the aguinaldo (year-end bonus), and the Christmas holidays, inflation in Costa Rica is expected to skyrocket once again and with it, the “cuesta de enero” or January uphill will be much steeper.

 

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The forecast is based on the expected increase in the price of oil at the international level which has already begun to rise and threatens, again, to exceed US$100 per barrel, which would translate into an irremediable increase in the cost of a liter of super, regular and diesel gasoline in our country.

From that point on, there would be a domino effect throughout the economy, since all productive activities depend on fossil fuels.

The international increase in gasoline is due to the fact that the member countries of OPEC agreed to reduce their production by 2 million barrels per day, which is the largest cut in oil supply since May 2020.

The impact would be felt until December, because the fuel calculation formula in Costa Rica will always be out of date by about two months, in relation to international prices.

“The effect on inflation will be negative due to the high weight of fuels, which will begin to rise again at the international level and that will affect everything new: imported raw materials and the price of some goods and services, so that the drop in the index reported in September and possibly in October would be transitory,” assured financial analyst Daniel Suchar to Costa Rica’s financial newspaper, La Republica.

Oil prices reached US$100 between June and August and with this, the result was gasoline prices above ¢1,000 colones per liter.

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Recently, in the last two months, consumers felt a relief in the economy due to the drop in fuels and agricultural products, which stopped the upward trend of all goods and services. There was even a reduction in inflation.

“The decrease in inflation in September caused families to feel relief in their pockets, but it could be temporary,” said Daniela Andrade, an economist at the Bolsa de Valores Nacional (National Stock Exchange).

However, the slight reduction was not enough to recover what was registered in the year-on-year consumer price index, which reached 10.37% between October 2021 and September of this year. This year the highest inflation of the last 13 periods was reported.

Gasoline, diesel, tomatoes and coriander are the products that have fallen in price the most in the last two months, but there are products that remain sky-high, such as meat and potatoes, as well as other groceries.

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“We had already anticipated that a deflation would be reported, mainly due to the behavior of fuel that continues to fall and the policies of the Banco Central (Central Bank) and this makes it projected that it will also continue to fall in October,” said Gerardo Corrales, an economist at Economía Hoy.

The specter of the recession led to the anticipation that global inflation would bottom out after a very difficult year, but apparently, oil would again put the economy in check.

A number of tips are offered by economists to eliminate inflationary pressure.

Fernando Rodriguez, an Economist at the National University, and Kimberly Quesada, Head of the financial education program at Coopenae, offer a number of tips to eliminate the inflationary pressure.

“Analyzing the budget well, the international maritime transport crisis (inheritance of the Covid-19 pandemic), the war in Ukraine and the extreme weather events of this 2022 have contributed to having inflation as an economic problem again on the scene global, after more than a decade that there was no similar situation in the world and now the economic recession is worrying,” said Rodriguez.

“The only way to weigh inflation is to make a budget and pay attention to ant expenses, update it daily, that will allow you to have real control of your expenses and encourage savings. Avoid waste in the consumption of water and electricity, so as not to exceed the amount exempt from VAT,” expressed Quesada.

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