Andean Group - March 2008 (ISSN 1741-4466)

Inflation hit 2.62% in February, more than twice the January rate of 1.09%. The main reason for the jump is the flooding which has affected food supplies. The food subindex jumped by 4.77% and accounted for virtually all (2.42 percentage points) of the overall increase. The February figure means that the rate for the past 12 months is now 13.3%.

Inflation is the government's main economic problem, though there are some comforting signs amid the rises. The transport and communications sub-index, which has often been a heavy contributor to inflation, saw a fall of 0.79% in February. This suggests that competition in both the transport and telephone industries is keeping prices down. The place with the highest inflation was Cochabamba where prices rose by 2.95%. Once again El Alto, the urban sprawl around La Paz, had the smallest rise of just 2.23%.

The government's critics argue that the government's heavy public spending is fuelling inflation. They argue that the central bank is trying to restrict liquidity while the government is showering consumers with bonuses and wages increases which add to liquidity. Former central bankers are also doubtful about the policy of allowing the boliviano to appreciate against the dollar. In the past 12 months the boliviano as risen by 5% against the dollar to B$7.53. The central bank is aiming for 8% inflation in 2008 and 6% in 2009. In 2007 the rate was 11.7%.

Reserves: The central bank's reserves stood at US$5.99bn at the end of February. This means that they have risen by 89% since the beginning of 2007.