Inflation rose to 5.25% in October, the highest in three years. The common suspects are food – this time, fish, not chicken – and transportation; El Niño and the war, to put it another way. The rise in some prices, however, is never the cause of inflation. Rather, it must be sought in the world of currency and credit.
Inflation rose to 5.25% in October, the highest in three years. The common suspects are food – this time, fish, not chicken – and transportation; El Niño and the war, to put it another way. The rise in some prices, however, is never the cause of inflation. Rather, it must be sought in the world of currency and credit.
Think about transportation. If fuel and air and land ticket prices rise, people have less money to spend on other things. Demand for other products should fall and so should their prices. Price movements, some up, some down, should more or less balance out.
A general increase is different. If the rise in some prices is not offset by the fall in others – not enough for the general price index to remain constant – it means that people have more means of payment at their disposal: more cash in their pockets, more money in their accounts, more lines of credit on their cards. It’s not necessarily enough for more, however, because prices may have risen faster.
We have now been above the target range of 1% to 3% inflation set by the Central Reserve Bank for eight months. This is not a consequence of the climate or the vicissitudes of the oil market, but rather of an acceleration in the growth of liquidity and credit that began in mid-2024 and has not stopped until now. The same thing happened at the time of the pandemic, and we ended up with inflation of almost 9% in June 2022.
What is the reason for this monetary expansion? Fundamentally, to the withdrawal of public sector deposits in the BCR during the last government and more recently to the purchase of dollars. The BCR could not avoid the first, although it could have counteracted it with other measures. What he could avoid was the second. We do not know what his motivation may have been; perhaps supporting the exchange rate, in view of the boom in exports, or perhaps another. The fact is that its inflationary effect is going to be with us for some time. And just as we give him credit, very deservedly, for the reduction in inflation over the years, we also have to debit his account for this increase.
