The Cost of Living in Costa Rica is on the Rise.

Prices are going up throughout the world, and Costa Rica is one of the hardest hit. In addition to rising fuel prices, the costs of goods — imports and exports — have risen, affecting Costa Rica business and life. To illustrate these effects, a study shows that, since 1999, Costa Rican buying power has deteriorated by about 25 percent.

Higher fuel prices have forced business owners to constantly reevaluate their bottom line. The country’s major industries, like tourism and industry, have tried to avoid the rising costs because they don’t want to pass them on to the consumer. Many sectors, like construction, have been unable to do the same, and costs to them and their customers have constantly risen.

Despite efforts, even the tourism industry will soon have to raise their rates. “We have to take tremendous care with price hikes and see what the competition does, and that’s not necessarily local operators, but rather other destinations like Mexico and the Caribbean,” Explore Costa Rica owner, Efraín Roldán, said. Even these changes may not be as effective as hoped, though, since many tour operators sell packages many months in advance, and are unable to account for future changes in prices.

In personal aspects, living in Costa Rica has gotten more difficult, as well. It seems that upper class families are actually the hardest hit, since they consume the affected goods, like gasoline, home appliances, and airline tickets. According to the Economic Commission for Latin American and the Caribbean (Cepal), Costa Rica is the region with the fourth largest deterioration of buying power in the region. A total of 19 countries were studied, and Costa Rica placed behind only Nicaragua, Honduras, and Haiti, the three poorest countries in the region.

With the dollar fluctuating against the colón, and prices climbing worldwide, Costa Rica has seen prices for goods purchased in dollars increase by 15 and 40 percent. For example, the price of cement has climbed a startling 100 percent in the last twelve months.

“Cement has two components that depend on crude oil, bunker (a derivative of petroleum) is part of its ingredients, and the transport and process of premixing, which requires fuel to work,” the manager of Edica, Mario Lara, said.

If the Central Bank does not print more money, these increasing prices will force Costa Ricans simply to purchase fewer imported and local goods. These problems can be attributed partially to the changing exchange rate, which has had an effect on inflation. Dennis Meléndez, professor of international finance, notes that the increase in prices does not produce inflation, but is actually caused by already increasing inflation.

To counteract these effects, the Costa Rica government has already begun to brainstorm ways to consume less fuel and bring the cost of goods down. Keeping inflation under control is also very important, and national economists are already hard at work on such challenges. In the meantime, Costa Rican consumers will have to keep their belts tightened, purchasing less with their 25 percent reduced buying power.

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Filed under: Business on July 14th, 2008