Costa Rica Grapples with Record-Setting Inflation

Consumers worldwide are struggling with rising prices for everyday expenses such as food, fuel, and housing, and it does not appear that the end is in sight. Price increases in one sector eventually affect other sectors in a “domino effect” type of reaction. The cost of fuels has been the driving factor for many of the cost increases of consumable goods, as fuels are used for both the production of items and also the delivery of the items to the end users. Price hikes are passed down through the entire manufacturing and sales chains, with consumers paying extra for practically every item they purchase.

Costa Rica has been hit particularly hard with escalating inflation rates. The National Institute of Statistics and Census reported that the period between September 2007 and September 2008 showed an inflation rate of 15.77%, which is the highest recorded rate in the past ten years. Antonio Mora, spokesman for the National Institute of Statistics and Census, calls this recent report “very alarming.” Some Costa Rican citizens are having a difficult time keeping up with these rising costs.

The hope is that the inflation rate increase reported for the months of September 2007 through September 2008 will be the worst increase for the foreseeable future. For the 2008 calendar year, National Institute of Statistics and Census analysts announced that the inflation rate for the months of January through September was 11.83%. The Central Bank of Costa Rica has since predicted that the inflation rate through the end of December 2008 will be 14.2%. This is still an unsettling statistic, but is a little more than a 1% decrease from the September 2007 – September 2008 reported rate. At the beginning of 2008, the Central Bank of Costa Rica predicted an annual inflation rate of 8%, but adjusted this to 14% just prior to August 2008.

In September 2008, Costa Rica’s Consumer Price Index (CPI) rose 0.95%. A nation’s CPI is a measurement of the cost of goods and services purchased by consumers. Sixty-eight percent of the products purchased by Costa Ricans in September 2008 had price hikes during September 2008. Price increases for rice, the country’s major staple food, set new records worldwide, resulting in Costa Ricans paying outlandish prices for a simple, basic food.

The Costa Rica real estate market has recently felt the effects of the record-setting inflation rates. Investors, buyers, and tourists have all taken a heightened interest in Costa Rican properties during the past ten years. Home sales activities are now decreasing, however, due in part to the rising costs of most goods and services. Home buyers and investors are more wary of large financial commitments because of the somewhat bleak economic news. Costa Rica real estate developers are starting to feel the pinch of rising costs of goods and services and are being forced to increase new property selling prices in order to cover the additional costs charged by their vendors.