Puerto Rico Economic Pulse ©

May 2010: What is Wrong with Inflation in PR?

Finding out the reasons for the PR/US inflation gap

Since 1899, the US dollar is the official currency of Puerto Rico. In economic terms, the island acts as an official dollarized country. In theory, PR should then benefit from the relatively low inflation experienced by the US economy during the past few years. However, this advantage has disappeared in PR over the past decade. According to official numbers, the difference between the PR and US inflations over the past 5 years was 11.2% higher in PR than in the US. This gap indicates something is wrong with the way the Consumer Price Index (CPI) is computed in Puerto Rico. Even more disturbing is the fact that since December 2009 or five months into 2010, the PR Department of Labor has not issued any new data on inflation. What then is wrong with the new CPI index, which was published in August 2007? This issue reviews some of the causes, effects, and possible solutions for this serious problem that affects all in Puerto Rico.