Costa Rica Inflation to End 16 Months Below Zero, Central Bank Chief Says

COSTA RICA · ECONOMY

Costa Rica inflation should turn positive again in September, central bank president Róger Madrigal said on Thursday 24 September. His board held the benchmark interest rate at 3% and called more pressure on domestic prices “highly likely”.

Consumer prices have fallen year on year for 16 straight months, according to the national statistics institute. Diesel, which moves the country’s buses and lorries, would cost 30% more in October than in mid-August under a regulator’s proposal.

Diesel moves Costa Rica’s buses, and fuel is about 28% of their operating costs, according to the regulator ARESEP. The Ciudad Quesada bus terminal in 2011: Manuel Antonio Aguilar Cubillo, CC BY-SA 3.0 CR.

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Why prices have been falling in Costa Rica

Consumer prices fell 0.17% in the year to August, according to INEC, the national statistics institute. It was the 16th month in a row of year-on-year declines, CRHoy and Monumental reported.

The central bank targets 3% inflation, with a tolerance band of one point either side, from 2% to 4%. Inflation has been below that band for 40 straight months, Delfino reported, and was last inside it in April 2023.

The bank’s July report traced the fall mainly to cheaper goods, from new cars to rice and eggs. It linked that to lower world prices for some products, more local supply and a stronger colón, which makes imports cheaper.

Falling prices often signal weak demand, but Costa Rica’s economy kept growing through this period. In July the central bank forecast growth of 3.4% for 2026.

What the central bank decided on 24 September

The seven-member board of the Banco Central de Costa Rica (BCCR), the central bank, kept its policy rate at 3%. Five members backed the hold and two wanted a cut, bank president Róger Madrigal told reporters, La Nación reported.

The board cited disrupted oil shipping in the Middle East and the worsening war between Russia and Ukraine. It also cited El Niño, a Pacific weather pattern that can hurt harvests, and said all three would lift world commodity prices.

Across its forecast horizon, extra pressure on domestic prices is “highly likely”, the bank wrote in its statement. Madrigal said he expects September’s consumer price figure to be positive, La Nación and CRHoy reported.

The bank described its stance as “slightly expansionary, close to neutral”, in other words mildly supportive of growth. It also said economic activity has slowed, mainly among firms in special regimes such as free-trade zones.

The bank’s forecast and what it assumed

The BCCR’s latest detailed forecast for Costa Rica inflation came in its quarterly monetary policy report, published on 30 July. It projected annual inflation of 0.5% for the last quarter of 2026 and 2.1% for the last quarter of 2027.

Even the 2027 figure sits only just inside the target band. From mid-2026 to mid-2028, the bank expected inflation to average above 2% but below 3%.

That forecast assumed average oil and fuel prices about 28% higher in 2026 and 12% lower in 2027. The bank has not updated those figures since July, and its 24 September statement gave no new numbers.

Why fuel is dearer even though the colón is strong

ARESEP, the public services regulator, sets pump prices each month from import costs reported by Recope, the state fuel importer. The country imports all of its fuel, ARESEP says, and it arrives already refined, so world prices reach the pump directly.

Pump prices reflect world prices and the exchange rate of the month before, the central bank explains. In the second quarter, imported fuels cost 59.4% more than a year earlier, it reported.

On 17 September the colón hit 446.80 per dollar, its strongest in central bank records kept since 2007, La Nación reported. A strong colón lowers what Recope pays in local money, because it buys fuel in dollars.

Recope told Diario Extra that those dollar purchases make up only about 46% of the final petrol price. Much of the rest is the single fuel tax, a fixed colón sum per litre updated quarterly with consumer prices.

In August, Teletica put that tax at ₡272 (US$0.60) per litre of super petrol, about 39% of the price. A stronger colón leaves that part unchanged, and dollar figures here use 454 colones to the dollar on 29 September.

What October’s pump prices could be

ARESEP has opened public consultation on October prices, Monumental reported on 22 September. Under the proposal, a litre of diesel would rise by ₡100 (US$0.22) to ₡788 (US$1.74).

Super petrol would rise by ₡38 (US$0.08) to ₡764 (US$1.68) a litre, about US$6.37 a US gallon. Regular would rise by ₡11 (US$0.02) to ₡718 (US$1.58).

Recope’s first request, filed on 11 September, had asked for ₡97 (US$0.21) more on diesel, El Financiero reported. Comments close on Tuesday 29 September, and the prices are not final until ARESEP rules.

Mario Mora, ARESEP’s energy superintendent, told Diario Extra that world fuel markets show “high volatility” with no sign of stability. He cited Middle East tensions, shipping limits in the Strait of Hormuz, financial swings and speculation.

Economist Fernando Rodríguez told the same paper the strong colón has lowered fuel prices, but dearer world fuel hid the effect. “If the exchange rate also rose, fuel would rise even more,” he said.

What independent economists expect

Diesel cost ₡606 (US$1.33) a litre in mid-August, Teletica reported, so the proposal would leave it 30% higher in two months. Such a rise “passes with a lag” into the cost of moving people and goods, economist José Luis Arce said, CRHoy reported.

Arce, who heads the consultancy FCS Análisis & Estrategia, says consumer prices could rebound in the first quarter of 2027. He also flagged a new ARESEP electricity tariff scheme from January that passes on the higher cost of fuel-fired power.

Mauricio Moya of the investment firm Mercado de Valores told La Nación the bank still has room to cut. He pointed to signs that economic activity is slowing.

Federico Quesada of the State Distance University (UNED) expects the dollar to hold steady or ease slightly by year-end, Delfino reported. Year-end bonuses and company inflows usually raise the supply of dollars then, he said.

In July, the National University (UNA) economic observatory warned that prices could turn positive in the second half of 2026. Fuel, fertiliser and power costs were the main risks, Semanario Universidad reported.

What it means for residents and expats

Under the October proposal, filling a 45-litre diesel tank would cost about ₡4,500 (US$9.91) more. A full 45-litre tank of super petrol would cost about ₡34,380 (US$75.72).

Fuel is about 28% of bus operating costs and 12% of taxi costs, according to ARESEP. In May the regulator raised bus fares by 5.43% outside the normal cycle because of dearer diesel, Infobae reported.

For people on dollar pensions or salaries, falling prices have softened the blow of a weaker dollar. The squeeze on such budgets is explained in Costa Rica’s Record-Strong Colón: What It Means for Expat Budgets.

If prices start rising while the colón stays strong, that cushion shrinks. The policy rate, the main guide for colón loan and deposit rates, stays at 3% until at least 26 November.

What comes next, and what this does not mean

ARESEP must now set October’s final pump prices, and INEC will publish the September inflation figure. The central bank’s next and last rate decision of the year is on Thursday 26 November.

A return to positive Costa Rica inflation would not mean prices are rising fast. The bank’s own July forecast put the end-2026 rate at 0.5%, well below its 3% target.

It is not yet known how far world fuel prices will move before the November decision. Nor is it clear whether ARESEP will reopen bus fares, as it did in May.

Stabilising forces remain, since the colón is near its record and the economy is still growing, if more slowly. The bank has said it will adjust its rate when conditions require it.

Frequently Asked Questions

Why has Costa Rica inflation been negative?

Lower world prices for some goods, more local supply and a stronger colón pulled prices down, the central bank said in July. Consumer prices fell 0.17% in the year to August, the 16th straight year-on-year decline.

Why is fuel getting dearer if the colón is strong?

World fuel prices have risen more than the colón has gained, the central bank’s figures show. Imported fuel is only about 46% of the petrol price, Recope says, and much of the rest, including the single fuel tax, is set in colones.

How much will fuel cost in October?

Under ARESEP’s proposal, diesel would be ₡788 (US$1.74) a litre, super petrol ₡764 (US$1.68) and regular ₡718 (US$1.58). The regulator has not yet set final prices.

When does the central bank decide on rates next?

On Thursday 26 November, its last scheduled decision of 2026. The policy rate has been 3% since the bank cut it on 23 July.

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