Government confirms need to address escalating retail price inflation

Photo by Felix Tchverkin

Marino Murillo, the Head of the Permanent Commission for Implementation and Development, has confirmed that retail price inflation in Cuba’s domestic economy is now one of the principal problems facing the country and that government must address it.

Speaking to members of Cuba’s National Assembly on 27 October, he said that the cost of the reference basket of goods and services was now almost double what was forecast when government designed the monetary reordering task (Ordenamiento Monaterio). Inflation, he said, had “greatly affected” Cubans’ purchasing power, especially in sectors where income was less, despite the wage reforms introduced. 

Speaking about the implementation of measures that saw Cuba’s dual currency system unified in January through a devaluation against the US Dollar and accompanying measures intended to ameliorate the impact, Murillo said that the pandemic and the tightening of the US embargo had imposed exceptional conditions.

Noting that a projected wholesale inflation rate of 1,200% was contained within the design, he said that this was largely under control, but that retail inflation was not. Wholesale price increases in the state sector at 222%, he said, were less than anticipated, but “the problem is in retail inflation”, Cuba’s state media reported him telling legislators.

Noting that the informal market now had an inflation rate of 6,900% (due to shortages), Murillo observed that this was now “influencing both the retail and the wholesale markets” and was an issue that “must be managed”. 

During his address, Murillo told legislators that when it came to goods in retail circulation there was a supply deficit in the order of CUP60bn (US$2.5bn). “This is what has triggered [a rise in] prices in the informal market, and therefore the growth in the cost of the basket of goods and services”, he said. Observing that “when there is money in the economy, there is almost always inflation”, he said that one response would be to control this through fiscal policies. This would require, he said, the State to collect 92% of the population’s income by various means. He appeared, however, to propose an alternative approach, noting that the latest estimates indicated that the State was collecting 67.3% of income. This suggested, he said, that “the population is accumulating more money than it should have, or is spending it on something else”, or “what was really happening was that money is being polarised”. “There is a group of people with a lot of money”, he said.

Noting also the effects of the partial dollarisation of the Cuban economy and an increase in the inconvertibility of the currency, he told delegates, “If we want to fight against inflation, we will have to see how all these imbalances are harmonised.” 

To try address this, Murillo said, work was being undertaken by the Ministry of Finance on “a wholesale price policy” to manage these variations

Speaking about the impact on Cubans of retail price inflation, which he said was designed at 60%, he acknowledged that this “does not match what people are living”. “People are living with seven, ten times higher prices”, he said.  The approved index, he explained, is based on state prices, “but when you add the levels of the informal market, inflation would be much higher”. He acknowledged also that the price of transport, housing services, and food were much higher than the 60% designed.

In his closing address to the second plenary of the Communist Party held two days earlier, President DĂ­az-Canel also expressed similar concern that inflation had reached levels higher than those foreseen and was, he said, affecting the purchasing power of the Peso for retirees, pensioners, workers, and the population. He also noted that compensatory measures adopted for the most vulnerable were still insufficient.

In his role as First Secretary, he told leading Party members that the embargo and COVID-19 had reduced the country’s foreign exchange earnings to a minimum, making it difficult to finance industrial production, import raw materials and consumer goods, and maintain the stability of the economy. He noted also that shortages of foreign currency at the official exchange rate could not be met, resulting in informal trading at much higher rates.

To address this, he said the implementation of anti-inflationary measures will require the “greater participation of national, state, and non-state producers, in order to satisfy the demand of the population”. He also noted that actions are required “to better control liquidity in the hands of the population” and this must be “accompanied by an increase in supply”.

More positively, he said that he expected that the opening of tourism on 15 November and the return of economic activity in the country will enable Cuba to be better able to address the complex scenario it faces.

The Caribbean Council is able to provide further detail about all of the stories in Cuba Briefing. If you would like a more detailed insight into any of the content of today’s issue, please get in touch.