For the first time since 1970, Ecuador’s inflation rate is negative through the first three quarters of the year and economists predict the trend will continue through the fourth quarter of 2017.
Prices, as measured by Ecuador’s National Institute of Statistics and Census (INEC), dropped .15% in September and are down .03% for the year.
Among goods and services that make up the INEC price index, food, beverages, furniture, clothing, liquor, and communication services are leading the downward trend.
Economists say lower prices are the result of three factors: the elimination of the surcharge on imports, the reduction of the value added tax, or IVA, from 14% to 12%, and the readjustment from a period of higher inflcation from 2013 to 2016.
“For several years, prices in Ecuador appreciated more rapidly than they did in the U.S., even though we both use the dollar,” says economist Alberto Acosta. “We became expensive due to our growing economy as well as tax and import duty issues. The readjustment is a natural correction and it will continue until we reach equilibrium.”
Although stagnant and falling prices are putting a strain on some economic sectors, it is helping others, he says.
Nationally, liquor prices have dropped almost 50% since September 2016, prompting a large increase in sales. “Industry-wide, we have seen a 100% growth in total sales since last year,” says Felipe Cordovez, president of the Association of Importers of Liquors. “Growth is beginning to slow but we expect it to continue into 2018.”
Sellers of appliances also report a rise in sales, up more than 30% from 2016. “There was a pent-up demand due to high prices from the import surcharges and now consumers are coming back to the market,” according to Acosta.
He adds that the news is not as good for some agricultural products and textile manufacturers. “Because of the economic climate, they cannot raise prices even as production costs rise,” he says. “In the case of clothing, cheaper imports are having an impact on local manufacturing.”