Inflation in Cuba was Out of Control in January

Black beans, a staple of the national diet, have had a recent cost increase of 10.5%. (14ymedio)

14ymedio bigger14ymedio, Elías Amor Bravo, Economist, 19 February 2023 — A bad start for the Consumer Price Index (CPI) in Cuba in January. The Office of National Statistics and Information just released the data and it is not good. Prices increased by 2.32% in January compared with December.  What’s worse, the interannual variability rate, which measures how inflation behaved between January 2022 and 2023 was 42.80% which is greater than what was reported in December, when it was 39%.

Furthermore, comparing the interannual rate from January 2022 (relative to 2021), which was 23.26%, the rate this year is practically double. This means that inflation in the Cuban economy is accelerating and gained speed once again at the beginning of the year, with its negative effects on the purchasing power of the population and relative prices. It gives the impression that the regime has thrown in the towel and is proving incapable of stabilizing the economy with appropriate fiscal and monetary policies.

Why have prices increased in Cuba so intensely in the month of January? In essence, because four relevant components of the CPI increased by 2% or more in that month.

The first was Restaurants and Hotels, with 4.96% (double the median), which increases the interannual rate to no less than 59.85%, raising the index’s total by 20%. Analyzing the products with the greatest increase in prices, once again leading are: Snacks with a monthly increase of 7.08%; followed by To-Go Prepared foods, 4.29%; and Lunch and Dinner, at 4.1%.

Basically, it has to do with goods processed by the activities of the sector, which charge higher prices because they need to pass onto consumers the increase in the costs of raw materias and ingredients they obtain from their suppliers.

In second place, Foods and Non-alcoholic Beverages registered an increase of 2.74% compared to the previous month (higher than the median) and also, the highest interannual rate, 67.97%, contributing 53.66% to the index.

The two most inflationary components are also those that are weighted the highest in the index. The acceleration in inflation in the coming months is set. Products that have registered the greatest increase in prices in the Food and Non-alcoholic Beverages group are once again cheese at 7.36%, ham at 5.96%, lamb at 5.34% and pork at 2.26%, products that are becoming more expensive in addition to being scarce in the markets.

The third most inflationary component was Furniture and Home Goods, which experienced price increases of 2.22% in January relative to December and with that, put the interannual rate at 18.83%. This is one of the components of the index which has gained strength relative to last year as cost increases are passed on to the sale price.

The fourth group is Diverse Goods and Services, with an increase in January of 2.01% which in the interannual rate increases to 18.49%.

One should consider that these four components are barely affected by import-related inflation, the argument being used by leaders to justify the out-of-control prices. It does not seem to be a result of the embargo or “blockade” either. The inflation has roots in the domestic economy and responds, ever more so, to the inability of the communist model that runs the economy, which should be regulated by the market — much more efficient.

Next, there are three components of the CPI that, though they registered increases below the median, had interannual rates above 10%. That is the case for Education (one of the achievements of the revolution, free of charge), with an interannual rate increase of 17.86%. Also, Transportation, with an interannual rate of 15.18% and finally, Home Services registered a 14.54% interannual inflation rate.

Transportation deserves special attention, since one of the items of the index with the greatest increase in January is in this group. Specifically, Urban Taxis and “bicitaxis” (as a group) increased by 10.59%, while urban transportation via motorbike increased by 4.31%. Once again, underlying inflation exerts influence on the accelerated price increases which will occur in the near future.

There is one component of the index, Alcohol and Tobacco, which experienced a 6.13% decline in the monthly rate, but its interannual rate still ended up being 18.7% which suggests that inflation is rooted in the economy (an underlying effect) and despite a few monthly improvements, the trend continues to rise.

The year is off to a bad start with inflation data, particularly negative for its impact on the purchasing power of salaries and pensions (declining for foods and necessary processed goods) and introduces a distortion factor because many activities must transfer cost increases onto prices to avoid becoming insolvent, as happened when the Ordering Task* went into effect.

Inflation takes root in the Cuban economy and causes negative effects such as, for example, a declining Cuban peso, cash shortages in the banking system or acting as an unfair tax which hits the poor with greater intensity. The regime, defenseless.

*Translator’s note: The “Ordering Task” is a collection of measures that include eliminating the Cuban Convertible Peso (CUC), leaving the Cuban peso as the only national currency, raising prices, raising salaries (but not as much as prices), opening stores that take payment only in hard currency which must be in the form of specially issued pre-paid debit cards, and a broad range of other measures targeted to different elements of the Cuban economy. 

Translated by: Silvia Suárez


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