WILLEMSTAD - The quarterly inflation rate of Curaçao increased from 2.1% in the first quarter of 2019 to 3.1% in the first quarter of 2020 as a result of a surge in the prices of beverages and tobacco combined with higher food prices. The average prices in Curaçao recorded a larger increase than the average prices in the United States since the third quarter of 2018. Given the fixed peg of the NAf. to the U.S. dollar, this diverging development points to an appreciation of the real exchange rate and, hence, a deterioration of Curaçao’s competitiveness.
An analysis of the development in the CPI components in the first quarter of 2020 compared to the first quarter of 2019 reveals that prices rose across almost all categories but were most pronounced in the categories “Beverages & tobacco”, “Food”, and “Housing”. Prices in the category “Beverages & tobacco” surged (18.1%) as a result of higher excises on tobacco, liquor, beer, and wine, and the increased sales tax rate on imports from 6% to 9% introduced in September 2019. Prices accelerated in the category “Food” (7.0%) primarily as a result of price gains of potatoes, vegetables, fruits, fish, and meat. In the “Housing” category prices increased (4.0%) because of a significant increase in water and electricity prices due mainly to higher prices for fuel used in the production of electricity and water. The prices in the category “Transport & communication” recorded a deceleration in the first quarter of 2020 (0.4%) compared to the first quarter of 2019 (0.7%) due to a decline in gasoline prices. By contrast, prices dropped in the category “Clothing & footwear” (-2.3%).
Core inflation is measured in five ways, namely, (1) the inflation rate excluding electricity prices, (2) the inflation rate excluding fuel prices, (3) the inflation rate excluding electricity and fuel prices, (4) the inflation rate excluding food prices, and (5) the inflation rate excluding food, fuel, and electricity prices.
A comparison between the headline and core inflation rates reveals that food and electricity prices exerted an upward pressure on the general inflation rate during the first quarter of 2020. The core inflation rate excluding food prices (2.2%) and excluding electricity prices (2.7%) was lower than the headline inflation rate (2.9%). The core inflation rate excluding gasoline prices (3.3%) was higher than the headline inflation rate (2.9%) because of the decline in gasoline prices during the first quarter of 2020. Meanwhile, the core inflation rate excluding electricity and gasoline prices was 2.9%, while the core inflation rate excluding food, electricity, and gasoline prices was 1.8%.
