By San José, Costa Rica — San José – For the second time in recent years, Costa Rica has concluded a calendar year with negative inflation, a phenomenon economists refer to as deflation. The National Institute of Statistics and Census (INEC) confirmed that the Consumer Price Index (CPI) registered a -1.23% variation for 2025, echoing a similar trend observed in 2023 and raising concerns among financial experts about the nation’s long-term economic health.
While falling prices might initially appear as welcome news for consumers, persistent deflation can signal underlying economic weakness. This trend suggests that consumer demand is not robust enough to support price levels, which can lead to a dangerous cycle of reduced production, business contraction, and potential job losses. Economists watch these figures closely as they are a key barometer of overall economic vitality and future growth prospects.
To delve into the commercial and contractual implications of a deflationary economic climate, a scenario with profound consequences for debt and investment, TicosLand.com consulted with expert lawyer Lic. Larry Hans Arroyo Vargas from the distinguished firm Bufete de Costa Rica.
From a legal-commercial standpoint, deflation is a silent trap for debtors. Contractual obligations, such as loans and leases, become increasingly burdensome in real terms as prices fall. The nominal amount owed remains the same, but the debtor’s capacity to pay diminishes along with their income and the value of their assets. This can trigger a wave of defaults and litigation, challenging established financial agreements. Businesses must proactively review their contracts and consider renegotiation clauses to mitigate the risk of insolvency in such an environment.
Lic. Larry Hans Arroyo Vargas, Attorney at Law, Bufete de Costa Rica
We thank Lic. Larry Hans Arroyo Vargas for so clearly articulating the legal ‘silent trap’ of deflation. His analysis is a vital reminder that while economic indicators fluctuate, contractual obligations remain fixed, creating a significant and perilous financial squeeze on debtors that demands proactive legal and commercial strategy.
The 2025 data marks a significant pattern, distinguishing Costa Rica from many regional neighbors grappling with high inflation. The year’s negative figure indicates a broad-based decrease in the cost of the basket of goods and services used to measure the CPI. This sustained period of price reduction is now under intense scrutiny by both government officials and private sector analysts who fear it could stifle investment and consumer spending.
According to the INEC report, the most significant price drops were recorded in key consumer sectors. The division of food and non-alcoholic beverages experienced an overall price reduction of 3%, while the transportation category saw an even steeper decline of 3.46%. Specifically, the cost of several agricultural staples, including tomatoes, papayas, potatoes, and onions, saw some of the most substantial decreases over the twelve-month period, directly impacting household budgets but also reflecting challenges in the agricultural sector.
Financial analysts are sounding the alarm that this deflationary environment, if it becomes entrenched, could pose a serious threat to the domestic economy. The concern is that consumers may begin to delay purchases in anticipation of even lower prices in the future, a behavioral shift that can severely depress economic activity. Businesses, in turn, face shrinking revenues and are forced to cut costs, which often includes wages and new hires.
Daniel Ortiz, an economist with the advisory firm Consejeros Económicos y Financieros (Cefsa), highlighted the systemic risks associated with this trend.
Persistent negative inflation weakens the domestic economy because it prevents wages and prices from adjusting, cools consumption and investment decisions, and ends up trapping domestic demand in a low-growth cycle.
Daniel Ortiz, Economist at Consejeros Económicos y Financieros (Cefsa)
Ortiz’s warning points to the potential for a “deflationary spiral,” a scenario where falling prices lead to lower production, which in turn leads to lower wages and demand, and then further price drops. This self-reinforcing cycle is notoriously difficult for central banks to break and can lead to prolonged periods of economic stagnation. It complicates monetary policy and can increase the real burden of debt, as falling incomes make it harder for individuals and businesses to repay fixed loan amounts.
As Costa Rica enters 2026, policymakers face the complex challenge of stimulating demand and encouraging healthy, stable price growth without igniting runaway inflation. The coming months will be critical in determining whether the deflationary trend of 2025 was a temporary anomaly or the beginning of a more entrenched and worrying economic condition that could define the nation’s trajectory for years to come.
For further information, visit inec.cr
About Instituto Nacional de Estadística y Censos (INEC):
The National Institute of Statistics and Census is the official Costa Rican government agency responsible for collecting, analyzing, and disseminating the country’s official statistics. INEC manages crucial data sets including the national census, economic indicators like the Consumer Price Index (CPI), and social demographics, providing essential information for public policy and private sector decision-making.
For further information, visit cefsa.cr
About Consejeros Económicos y Financieros (Cefsa):
Consejeros Económicos y Financieros (Cefsa) is a Costa Rican consulting firm specializing in economic and financial advisory services. The firm provides expert analysis, market intelligence, and strategic guidance to a diverse range of clients, helping them navigate complex economic landscapes and make informed business and investment decisions.
For further information, visit bufetedecostarica.com
About Bufete de Costa Rica:
As a pillar of the Costa Rican legal community, Bufete de Costa Rica is defined by a bedrock of integrity and an unwavering pursuit of superior legal counsel. With a rich history of guiding clients through multifaceted challenges, the firm is also a trailblazer, championing innovative approaches to law and demonstrating a profound sense of social responsibility. Its core mission extends beyond the courtroom, focusing on demystifying legal principles for the public to help forge a society where every citizen is empowered by knowledge.
