Nicaraguan Central Bank Releases Economic Indicators; Basket of Goods ticks up.

Food prices are increasing in Nicaragua, according to the latest report by the Nicaraguan Central Bank (BCN, by its Spanish acronym). The basic basket of goods and services has increased by C$280 since January.

In other words, the estimated monthly cost of essential staples, including food, has gone from C$13,500.85 to C$13,780.79, as prices have slowly crept up.

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Source: Banco Central de Nicaragua

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Foodstuffs represent a significant percentage of the basket of goods and services, an economic indicator that is commonly used to track consumer prices and inflation over time.

In Nicaragua, the BCN tracks 53 consumer goods and services, organized into three categories, foodstuffs, household goods and services, and clothing.

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Source: Banco Central de Nicaragua

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The basic food basket increased by C$98.03 ($2.96) between March and April of 2019. The increase continues a two-month upward tendency and reflects the first effects of the tax reform bill signed by Daniel Ortega in February. The immediate effects were most noticeable in March, when food costs increased by approximately 9%, reverting a downward trend reported in February, before the reform bill came into effect.

When the tax reform bill was being discussed, financial experts in Nicaragua warned about its effect on consumer prices, in spite of government assurances that “all basic staples would be tax exempt,” and that only the wealthy would be affected.

Unfortunately, as financial expert Gisella Canales noted, tax reforms do not work that way. Any additional costs are passed on to the consumer.

Canales’ analysis reflects a well-established economic principle, also noted by the Food and Agriculture Organization of the United Nations (FAO). Writing about the tax reform, FAO indicated that although dietary staples, like maize and beans, as well as “many products supplied directly from smallholder agricultural producers” would remain [tax] exempt, the elimination of “exemptions on the importation of inputs and equipment for agricultural and industrial production […] could eventually reflect in higher consumer prices.”

BCN data shows that prices for most products and services have increased since February. Indeed, out of 53 products, only 8 have decreased in price, beans, eggs, tomatoes, potatoes, peppers, cabbage, laundry soap, and women’s underwear.

Minimum wage in Nicaragua falls far below the cost of the basket of goods and services. For example, if a household was dependent on agricultural labor, the combined earnings of four people would be enough to cover the entire basket. On the other hand, the highest minimum wage salary, set at a little over C$9 thousand, would barely cover the cost of food.

MITRAB Acuerdo Ministerial ALTB-01-03-18 del 01 marzo 2018 al 28 febrero 2019

 

The price hikes are not the result of any sanctions, as no general ones have been issued yet.