Costa Rica Inflation

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Costa Rica: Annual drop in consumer prices steepens in August

September 7, 2015

Consumer prices declined 0.09% in August over the previous month, which marked a softer decline than July’s 0.43% decrease. According to the Statistical Institute, the print reflected a decrease in six of the 12 components of the index, with the largest decreases found in entertainment and culture as well as transport.

After consumer prices in July recorded their first drop in annual terms in many decades, the decrease steepened in August. Consumer prices fell 0.7% in August over the same month last year, which marked an even steeper decrease than July’s 0.3% drop and represented the largest fall on record. The two consecutive drops result from methodological changes in the calculation of the price index as the Statistical Institute recently changed the base month to June 2015. The Central Bank added that July’s and August’s decreases were not the result of monetary policy or an increase in the impact of macroeconomic shocks, but merely a change in relative prices. Meanwhile, annual average inflation inched up from 3.4% in July to 3.5% in August.

On 2 September, the Central Bank cut its Base Rate to 6.50%, down from the previous rate of 6.55% which was set on 27 August. Since January, the rate has followed an overall downward trend. The Base Rate, which constitutes the main reference rate for loans and investments, is calculated by the Central Bank as a weighted average of the rates given for deposits by financial institutions for maturities of between 150 and 210 days.

In a recent statement, the Central Bank noted that it expects inflation to remain below its 4% plus/minus 1.0 percentage points target range throughout the remainder of this year, resulting from the change in the base month of the price index. The bank projects the statistical effect to fade gradually and inflation to approach the 4% target in 2016. FocusEconomics panelists see inflation ending 2015 at 3.2%, which is unchanged from last month's forecast. In 2016, the panel sees year-end inflation at 4.2%.

Author:, Economist

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Costa Rica Inflation Chart

Costa Rica Inflation August 2014 2

Note: Annual and monthly variation of consumer price index in %.
Source: National Institute of Statistics and Census (INEC).

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