Inflation in Costa Rica, as gauged by the year-on-year Consumer Price Index (CPI), culminated in 2024 with a positive reading of 0.84%, according to data from the National Institute of Statistics and Censuses (INEC).

This marks a significant reversal from the predominantly negative values observed in 16 of the past 20 months.

The Banco Central de Costa Rica (BCCR) had established a tolerance range of 2% to 4%, with a central target of 3%.

Since August 2022, when the CPI peaked at 12.13%, the index began a downward trajectory, entering negative territory by June 2023.

By August 2023, the index bottomed at -3.28%.

Brief positive spikes in July and August of 2024 failed to hold, with values turning negative again in September, October, and November.

José Luis Arce, an economist and Director of Analysis and Strategy at CFS Capital, emphasized that the prolonged negative numbers should not be construed as a deflationary period.

Instead, it was a benign reduction in prices spurred by a favorable external shock in raw materials and terms of trade.

Arce remarked, “Just as international commodity price increases raised Costa Rica's inflation in 2021 and 2022, their decline and future forecasts are expected to exert downward pressure on local inflation in 2025.”

The products contributing most significantly to the annual CPI increase were potatoes with a 147.52% surge, mobile phone services at 10.3%, electricity by 8.67%, and housing rent rising by 4.38%.

Conversely, gasoline prices fell by 11.4%, telecommunications package services by 10.62%, cooking oil by 23.85%, diesel by 19.68%, and new automobile prices by 2.94%.

Nelson Castillo, head of the INEC Consumer Price Index Unit, explained how sectors like 'Food and Non-Alcoholic Beverages' (up by 2.6%) and 'Housing and Utility Services' (up by 4.91%) accounted for the largest portions of the CPI increase.

Meanwhile, a 4.48% drop in 'Transport' cushioned these increases.

Castillo pointed out that the highest-weighted segment is food and non-alcoholic beverages, constituting 24.32% of total household spending, playing a crucial role in mobility of the index.

The CPI is composed of 289 goods and services, where some products have greater weight due to higher consumption levels among Costa Rican households.

According to Arce, price hikes hit lower-income families the hardest, given their association with essential goods like food and beverages.

Nevertheless, Arce considered that these increases are temporary and expected to reverse soon.

Additive complexities include specific market dynamics for each product.

Factors affecting price changes range from environmental conditions and production seasons to the presence of pests in fresh foods, influencing supply and demand.

Castillo noted the impact of the exchange rate on U.S. dollar-denominated goods, such as airfares and new vehicles, which are adjusted to colones based on the Central Bank's reference rate—indicative of the direct impact of a rising U.S. dollar.

On a monthly basis, the index increased by 0.94% in December compared to November.

INEC highlighted that this represents the highest monthly variation in the last five years for December.

During this period, 44% of items saw a price increase, 38% saw a decrease, and 18% showed no change.

Such dynamics underscore the complexity of household spending influences amid ongoing economic pressures.