Costa Rica: Inflation accelerates in June and the Central Bank cuts rates for the third time this year
July 5, 2019
Consumer prices rose 0.27% in June compared to the previous month, up from 0.14% in May. June’s increase was primarily due to higher prices for food and non-alcoholic beverages.
Inflation accelerated to 2.4% in June, up from 2.3% in May and inching closer to the Central Bank’s 2.0%–4.0% target range. Annual average inflation remained unchanged from May’s 2.0% in June.
On the monetary policy front, the Central Bank slashed interest rates by 0.25 percentage points on 19 June, bringing the key policy rate down to 4.50% from 4.75%. The move, which marks the third interest rate cut so far this year, was made in a bid to support still-weak economic activity and low inflation expectations, and was likely made all-the-more possible by the U.S. Fed’s increasingly dovish stance.
Looking ahead, inflation should pick up even further in the coming months, particularly given July’s switch to a value-added tax from a general sales tax and recent Central Bank monetary policy loosening. However, less-than-stellar economic activity growth should cap inflation gains.
Author: Edward Gardner, Economist