Inflation could grow by as much as 131% in 2010

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    by TCRN Staff

    If market inflation expectations become a reality next year like they have in the past, the indicator would have a 131% growth within 12 months.

    According to the latest survey of expectations by the Central Bank of Costa Rica (BCCR) for the month of November, the inflation would reach 7.3% in October next year, while in the same period of 2009 it reached 3.16% .

    The expectation by October 2010 is almost identical to that outlined in the previous survey of the BCCR, reflecting that you can expect a significant increase. The survey was applied to 25 analysts between 6 and 19 November this year.

    While the range of responses for this variable is between 2.0% and 10.0%, most of the values quoted are located close to 8%.

    Part of the document explains that the main factor taken into account by analysts to cast their inflation expectations is the recent past. It should be noted, that there are times when the ratings for the survey of the BCCR do not conform to reality, which denotes an autoregressive behavior.

    In the opinion of the Securities INS manager, Gina Ampiée, inflation in 2010 will be around 5.5%. “The recovery in domestic demand and price of raw materials, would lead to this increase,” she added.

    However, Ampiée believes that due to better liquidity management by the central bank and use interest rate as an instrument for controlling inflation, it would be hardly more than two digits.

    “Controlling inflation will depend on precise management of liquidity by the Central Bank and the interest rate policy to send signals to the market and affect domestic demand. The financial losses of the monetary authority will have an impact, “said the analyst.

    As in INS Securities Exchange in Aldesa Since predict that the Consumer Price Index, could register a higher growth rate in 2010. “The dynamism of economic activity globally, relative to 2009 and showing a rebound in prices of raw materials such as oil, could result in a higher rate of growth in the price level”, explained the Investment Strategy Coordinator, Ana Toyama.

    According to Toyama, regarding the current foreign exchange system, if the exchange rate is located in one of the bands, top or bottom, the central bank will have few degrees of freedom to control the price level.

    “This is known as the impossible trinity, ie in a country where there is free mobility of capital, the Central Bank can only control the exchange rate or interest rates,” Toyama said.

    The economist and consultant Ecoanálisis partner, Alberto Franco, is of the opinion that the behavior of inflation will depend much of the price of oil and other commodities, and the degree of recovery from external and internal demand. “This year we will end with an inflation rate of between 4% and 5%, thanks in much to the sharp drop in oil prices and other commodities, and global recession, but if these prices continue to rebound and recover the external and internal demand, I believe that inflation could be slightly higher in 2010, “Franco said.

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