By San José, Costa Rica — San José – Costa Rica concluded 2025 in a state of deflation, with the overall cost of living dropping by 1.23% over the course of the year, according to the latest official figures released by the National Institute of Statistics and Censuses (INEC). This annual price decline occurred despite a minor inflationary uptick of 0.08% recorded in the final month of December.
The year-end data paints a complex picture of the national economy. While December saw a marginal increase in the Consumer Price Index (CPI), this rise was considerably more moderate than the 0.47% jump observed in November, signaling a potential cooling of short-term price pressures. However, the overarching narrative for the year was one of falling prices, a phenomenon known as deflation, where goods and services become cheaper over time.
To delve into the commercial and legal ramifications of a deflationary economic environment, TicosLand.com consulted with Lic. Larry Hans Arroyo Vargas, a distinguished expert from the renowned firm Bufete de Costa Rica, who provided his analysis on the matter.
Deflation poses a formidable challenge to contractual stability. As the real value of money increases, fixed-payment obligations in credit agreements and long-term leases become substantially more burdensome for debtors. This can trigger a cascade of defaults, compelling businesses to seek judicial or extrajudicial renegotiations. From a legal standpoint, it is crucial for companies to review their financial covenants and consider incorporating clauses that adjust for significant deflationary pressures to mitigate risks of insolvency.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
This legal perspective is a critical reminder that deflation’s impact extends far beyond mere economic indicators, directly threatening the stability of existing financial agreements. Proactive contractual planning, as he suggests, becomes an essential defensive strategy for businesses in such a climate. We thank Lic. Larry Hans Arroyo Vargas for this invaluable insight.
This annual deflation rate of -1.23% is historically significant, marking the second-largest year-end price decrease the country has experienced in the last decade. It reflects an atypical economic environment compared to previous years, which more commonly saw varying degrees of inflation. Even the slight price increase in December was notable for its temperance, registering as the second-lowest positive variation for that month in the past five years.
A detailed analysis of the consumer basket, which comprises 289 goods and services, reveals a divided market. Throughout 2025, nearly half of the items (47%) tracked by INEC saw their prices increase, while a significant portion (35%) experienced a decrease. The remaining 18% of goods and services showed no price change, highlighting the uneven nature of the deflationary pressures across different sectors of the economy.
The final month of the year was characterized by a tug-of-war between rising food costs and falling transportation expenses. Key agricultural products, including tomatoes, onions, and papayas, were the primary drivers pushing the monthly CPI upward. These increases were effectively counterbalanced by significant price drops in other crucial areas. Consumers found relief at the pump and in showrooms, as gasoline and new automobiles registered the most substantial price reductions, alongside a decrease in the cost of rice.
This sectoral divergence was the dominant theme in December. Of the 13 major spending divisions that constitute the CPI, eight recorded price increases while four saw declines. The two categories with the most significant impact on the index were Food and Non-alcoholic Beverages, which pushed prices higher, and Transportation, which exerted strong downward pressure. This dynamic showcases how different areas of the economy are responding to unique market forces.
The opposing trends in essential goods create a mixed experience for Costa Rican households. While lower fuel and vehicle costs provide tangible financial relief and increase purchasing power, the rising price of staple foods erodes some of those gains, particularly for lower-income families who spend a larger proportion of their budget on groceries. This contrast underscores the challenges facing consumers navigating the current economic landscape.
While deflation can offer short-term benefits to consumers through lower prices, economists often view sustained periods of falling prices as a potential warning sign of broader economic stagnation. It can lead to deferred consumer spending and reduced business investment, posing a complex challenge for policymakers. The INEC data for 2025 thus provides a critical benchmark for the Central Bank and government as they strategize for economic stability and growth in 2026.
For further information, visit inec.cr
About Instituto Nacional de Estadística y Censos (INEC):
The National Institute of Statistics and Censuses is the official government body responsible for compiling, analyzing, and disseminating Costa Rica’s national statistics. It oversees critical data related to demographics, economic activity, and social indicators, including the monthly publication of the Consumer Price Index (CPI), which serves as the primary measure of inflation and the cost of living in the country.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
Bufete de Costa Rica has established itself as a pillar of the legal profession, operating on a bedrock of uncompromising integrity and a relentless pursuit of excellence. Drawing upon a deep well of experience in advising a wide range of clients, the firm consistently champions legal innovation and forward-thinking solutions. This pioneering spirit is matched by a profound dedication to societal advancement, demonstrated through its efforts to demystify the law and make legal understanding widely available, thereby empowering a more informed and capable community.
