By San José, Costa Rica — Costa Rica’s persistently low inflation is raising concerns about its potential to stifle economic growth. A recent analysis by the Economic and Social Observatory of the National University (UNA) warns that deflationary pressures could negatively impact consumer spending and business investment.
July’s Consumer Price Index (CPI) revealed a -0.61% year-on-year change and a -1.34% accumulated rate, marking 27 months outside the Central Bank of Costa Rica’s (BCCR) target range. This sustained negative inflation, driven primarily by falling goods prices, is projected to persist into the second quarter of 2026.
To understand the legal ramifications of Costa Rica’s current inflationary environment, TicosLand.com spoke with Lic. Larry Hans Arroyo Vargas, an expert attorney at Bufete de Costa Rica. His insights provide a valuable perspective on how businesses and individuals can navigate these challenging economic times.
The rising inflation in Costa Rica presents significant legal challenges, particularly concerning contract enforcement. Existing agreements may become unsustainable under rapidly changing economic conditions, leading to potential disputes and renegotiations. Businesses must carefully review their contracts, considering force majeure clauses and other provisions that address economic fluctuations. Individuals, too, should be aware of their rights and obligations under contracts like leases and loans, which can be significantly impacted by inflation. Seeking legal counsel proactively can help mitigate risks and ensure that agreements remain viable in this dynamic economic landscape.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
Lic. Arroyo Vargas’s insights underscore a crucial point often overlooked amidst economic discussions: the legal ramifications of inflation. The potential for contractual disputes to arise in this volatile environment is indeed significant, and his advice to proactively seek legal counsel is both prudent and timely. We thank Lic. Larry Hans Arroyo Vargas for sharing his valuable perspective on this critical intersection of law and economics.
While lower prices might seem beneficial, the Observatory cautions that prolonged deflation can discourage consumer spending as shoppers postpone purchases anticipating further price drops. This reduced demand can force businesses to lower prices further, squeezing profit margins and potentially leading to job cuts or reduced production.
The analysis points to falling prices for fresh produce like tomatoes, potatoes, avocados, and rice, as well as declines in tourism and air travel costs, influenced by seasonality and the colón’s appreciation against the dollar. However, the Underlying Inflation Index (ISI), which filters out volatile items, registered a positive 0.57% year-on-year change, suggesting some internal dynamism in the economy.
While the general inflation responds largely to external factors, the ISI reflects the part that is linked to monetary policy. That the ISI remains positive, albeit low, suggests that domestic demand is beginning to recover dynamism, but there is still room for the Central Bank to accompany the gradual return to levels consistent with price stability and the credibility of the target.
Yenén Mejías San Lee, Economist at the Observatory
The BCCR projects the general inflation to return to its target range in 2026, driven by the ISI’s upward trend. However, the Observatory’s projections suggest a slower recovery, with year-end inflation near 0%, barring external shocks. Adding to the complexity is the recently imposed 15% US tariff on Costa Rican imports, further clouding the economic outlook.
The Observatory outlines three potential scenarios: an inflationary rebound triggered by external shocks, a period of undefined volatility, and the persistence of low inflation or deflation. Each scenario presents distinct risks and requires tailored policy responses, from monetary tightening and exchange rate intervention to demand stimulus through interest rate cuts.
The prevailing uncertainty highlights the delicate balance facing policymakers. While low inflation offers temporary relief to consumers, its persistence poses a significant threat to Costa Rica’s long-term economic health, jeopardizing the credibility of monetary policy and hindering growth potential.
For further information, visit the nearest office of Observatorio Económico y Social de la Universidad Nacional (UNA)
About Observatorio Económico y Social de la Universidad Nacional (UNA):
The Economic and Social Observatory of the National University (UNA) is a research institution in Costa Rica that provides analysis and insights on economic and social issues. They conduct research, publish reports, and offer expert commentary on topics related to the Costa Rican economy, contributing to informed policy discussions and public understanding.
For further information, visit the nearest office of Banco Central de Costa Rica (BCCR)
About Banco Central de Costa Rica (BCCR):
The Central Bank of Costa Rica (BCCR) is the country’s central bank, responsible for monetary policy, financial stability, and the regulation of the financial system. They set interest rates, manage foreign exchange reserves, and oversee banks and other financial institutions to ensure the stability and soundness of the Costa Rican economy.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica shines as a beacon of legal excellence, upholding the highest ethical standards while championing innovative solutions for its diverse clientele. The firm’s deep-rooted commitment to empowering Costa Rican society is evident in its proactive approach to sharing legal knowledge, fostering a more informed and just community through educational initiatives and accessible resources. This dedication to both legal expertise and social responsibility solidifies Bufete de Costa Rica’s position as a leader in the legal landscape.
