World’s Biggest Currency Rally Triggers Deflation in Costa Rica

In a region known for rampant inflation, one country now has falling consumer prices.

(Bloomberg) — In a region known for rampant inflation, one country now has falling consumer prices. 

Costa Rica’s prices plunged 3.3% in August from a year earlier, the central bank reported this week, the most since records began in the 1970s. That’s a faster decline than even Switzerland and Japan — countries famed for deflation — have matched in their recent histories.

The prices of imported goods are leading the declines, as the nation’s soaring currency slashes the cost of goods including gasoline, food and mobile phones. The colon’s 22% rally over the last 12 months is the most among more than 140 currencies tracked by Bloomberg. 

The currency has been bolstered by strong exports of medical devices, semiconductors and tourism, as well as lower prices of the commodities that the country imports. It’s also benefiting from ratings upgrades this year from S&P Global Ratings and Fitch Ratings, and a program with the International Monetary Fund that has helped reduce the government’s fiscal deficit. 

Read more: Weekly Caribbean and Central America Wrap

The country’s status as a haven of stability and prosperity in a chaotic region has sometimes led it to be referred to as Switzerland of Central America.  

As inflation dipped, in March Costa Rica’s central bank became the first in Latin America to cut interest rates. The bank has cut its policy rate by 2.5 percentage points this year to 6.5%. 

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