Narayan AmmachchiLiving costs in Costa Rica are rising even as inflation plunges and the local currency, the colón, continues to strengthen — an unusual combination that has puzzled economists.
The inflation rate fell to a new low of 1.21% in March, down slightly from 1.24% in February. At the same time, a new report from the central bank has reignited debate over whether Costa Rica is, in fact, an expensive country.
Authored by economic researcher Melissa Vega, the report compares Costa Rica with Chile in terms of overall living costs. Vega concludes that while Costa Rica may be comparable to Chile, it is considerably more expensive than upper-middle-income countries like Colombia and Mexico.
The report indicates that health and education are categories where Costa Rica has remained more expensive than similar countries in Latin America.
Though the overall price levels appear to place Costa Rica on par with Chile, a more granular breakdown by product category reveals troubling disparities.
The cost differences are especially pronounced in staple food items. Milk, cheese, and eggs in Costa Rica cost between 24% and 26% more than the OECD average and up to 28% more than the Latin American average.
Prices for soft drinks and bottled water are 19% to 22% higher than in OECD countries and 29% higher than in Latin America. Even basic items like bread and cereals are 5% to 7% more expensive than in OECD countries and up to 25% more than in Latin America.
The price gap widens further in categories such as fruits, vegetables, and potatoes, which are up to 9% costlier than in the OECD and as much as 41% more expensive than in the rest of Latin America.
Businessmen are Worried
Adolfo Cruz, President of CAMTIC, expressed disappointment at the rising prices. “We’ve lost competitiveness and have become a very expensive country.” The Costa Rican Chamber of Information and Communication Technologies (CAMTIC) is a key organization that represents and promotes the interests of the ICT sector in the country.
The surging colón is apparently dealing a double-whammy impact on global services providers operating in the country. Since late 2022, the colón has risen around 30%, climbing from a low of 670 per U.S. dollar to around 500 today.
Cruz is also skeptical of the inflation figures published monthly by the National Institute of Statistics and Census (INEC). He contends that the explanations offered by the agency fail to reflect the lived reality.
“Costa Rica risks becoming a destination that only the affluent can afford,” warned Casey Halloran, CEO of Costa Rican Vacations, a travel agency based in the country’s capital, San José.
“This isn’t just about currency; structural issues like high food prices, transport costs, and bureaucratic burdens drive prices up.”
Employment Costs
Halloran is also concerned about the ripple effects of high living costs on payroll expenses. Costa Rica adjusts its minimum wage almost annually, and while the country offers generous incentives to firms operating in its free trade zones, the cost of employment is steep.
Employers must contribute approximately 26% of an employee’s salary to social security (including insurance and pensions) — more than double the OECD average of 12%. This translates into significantly higher labor costs for companies operating in Costa Rica.
In addition, employers are required to pay a mandatory Christmas bonus, known locally as Aguinaldo — equivalent to one-twelfth of the employee’s total earnings over the previous 12 months — as well as paid vacation leave for those who have worked at least 50 consecutive weeks.
Carlos Wong, president of the Free Trade Zones Association (AZOFRAS), highlighted these pressures in comments to local media outlet El Observador. He noted that the strengthening of the colón against the U.S. dollar has sharply increased operating costs. This, he warned, is restricting business expansion and delaying job-creating projects.
Wong also referred to the OECD findings, emphasizing that a combination of high energy costs and burdensome operational expenses is weighing on business expansion.
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