Macro Context: January’s Deflation Deepens

January 2026’s inflation rate for Costa Rica came in at -2.54% YoY, according to the Sigmanomics database[1]. This is a dramatic drop from December 2025’s -0.99% and far below the market estimate of -1.10%. The last positive print was in May 2025 at 0.37%, with the 12-month average now at approximately -0.48%.

Compared to prior months, the deflationary trend has accelerated: November 2025 saw -0.38%, October -1.00%, and September -0.94%. The January figure is now 216 basis points below the 12-month average, and 155 basis points below December’s reading. Year-on-year, this is a 291 basis point swing from January 2025’s modest positive inflation.

Drivers This Month

• Food and non-alcoholic beverages: continued price declines, contributing an estimated -0.7 percentage points.
• Transport: lower fuel costs, shaving off -0.4 percentage points.
• Housing and utilities: subdued rent and energy prices, subtracting -0.3 percentage points.

Policy Pulse

The Banco Central de Costa Rica’s inflation target is 3% ±1pp. January’s -2.54% is now more than 5 percentage points below the lower bound, underscoring a persistent undershoot and intensifying pressure for policy recalibration.

Market Lens

Immediate reaction: CRC weakened 0.3% against the USD in the first hour post-release, while 2-year local bond yields fell 11bps as traders priced in higher odds of rate cuts.

Core Macroeconomic Indicators

Beyond headline inflation, Costa Rica’s real GDP growth slowed to 1.2% YoY in Q4 2025, down from 2.0% in Q3. Unemployment remains elevated at 10.1%, while retail sales volumes have contracted for three consecutive months. The current account deficit widened to 3.8% of GDP in late 2025, reflecting weaker export demand and resilient import volumes.

Policy Pulse

Monetary policy remains accommodative. The central bank’s policy rate stands at 4.25%, with forward guidance now signaling a dovish tilt. Real rates have turned sharply positive, amplifying disinflationary forces. Fiscal policy is constrained: the government’s budget deficit reached 5.2% of GDP in 2025, limiting room for counter-cyclical stimulus.

Market Lens

Equities have underperformed regional peers, with the main index down 4% YTD. Sovereign spreads have widened modestly, but remain below 2023 highs. The CRC’s depreciation has been orderly, but further deflation could test investor confidence.