High Inflation Exacerbates Crisis in Cuba
Prices have shot up and inflation will probably reach a minimum of 500% and up to 900%, this year.
HAVANA TIMES – Cubans woke up last year wondering whether they would be able to find basic products such as milk, pork, rice, beans, medicine or shampoo. They are also asking themselves now: “if I do find them, how much will they cost?”
Now things are even more difficult, reports Reuters news agency.
Amid widespread shortages, Cuba (which has been heavily dependent upon imports and has almost gone bankrupt) has increased the sale of goods in US dollars in the past year, even when they stopped exchanging pesos for this and other hard currencies.
This forced many Cubans to buy dollars on the illicit market, where the exchange rate has gone up almost three times ever since the government drastically devalued the Cuban peso in January.
The alternative? Cubans without dollars can buy products “at even higher prices in pesos from resellers,” Cuban economist Omar Everleny said.
Many products just aren’t being sold in peso stores in spite of there now being billions of pesos in circulation.
The result of dollarizing the economy has been shortages and devaluation. Prices have shot up and inflation will probably reach a minimum of 500% and up to 900%, this year, said Pavel Vidal, a former economist at the Cuban Central Bank, who now works at the Universidad Javeriana in Cali, Colombia.
“Things are getting harder and harder every day because prices are all going up,” Arisleidis Blanco said, who works at a private cafe in Havana.
The Cuban government blames sanctions as a result of the US embargo for most of this, made worse during the Trump presidency. Then the COVID-19 pandemic ravaged the local tourism industry.
Some critics say that the main problem is the State’s incompetent economy, in spite of tepid reforms.
The State has held onto the WW2-style rations booklet, which offers some highly subsidized low-quality basic products in small amounts. It also increased state-sector wages and state pensions, up to five times more, when the peso was devalued by 95% in an attempt to soften the blow.
However, this only covers approximately 60% of the population and leaves many Cubans struggling to navigate extremely high prices to cover their basic needs.
“The Government used to sell LED light tubes for 30 pesos,” Ana Rebeca Labrada said, an employee in a state-led bakery. “They now cost somewhere between 400 and 500 pesos on the illicit market, and there’s not a single one in the government’s stores, not even in hard currency.”
Illegal sales are booming
The Cuban government says there is little money in the bank to exchange or import goods and sell them for pesos that can’t be changed outside the country to buy more.
The national economy shrunk by 11% last year after years in paralysis and, according to Cuban economists, it has continued to shrink thus far in 2021.
Inflation should just be a temporary stumble, authorities say, and the economy will recover as the pandemic passes and reforms get results. For example, devaluation has the objective of stimulating exports and reducing imports in the mid-term.
However, this is very little consolation to Cubans who are fighting to buy basic essentials as COVID-19 cases are reaching a new high.
Economists like Everleny say that the US Embargo is real, but the government needs to implement long awaited reforms in order to boost supply on the national market. He said until this happens the illicit market will continue to flourish, with prices always going up.
Last week, the State only sold rice via the ration booklet for 10 pesos per lb, and it was selling for 60 pesos on the illicit market, said Miriam, a Havana local. The amount people can by as a ration rarely gets them even halfway through the month.
A bottle of cooking oil used to cost 50 pesos and is now selling for 200. Meanwhile, a packet of hot dogs is selling for 80 pesos, compared to the 27.50 peso retail price in stores when available, she added. Powdered milk is being rationed for children and the elderly and sells for 2.5 pesos per bag, but it is selling for 300 pesos on the street, she pointed out.
Now they don’t want cash dollars at all
[Additionally, in the last week the government announced it has a surplus of cash dollars it isn’t able to use internationally because of the embargo. Starting today, June 21, citizens can no longer take cash dollars (bought on the street or brought by family) to the banks to load up their magnetic cards, the only way to shop in the dollar stores. The only option is for family members to load up their cards from abroad.
Cubans residing abroad who can travel in the coming period must bring other hard currencies like Euros for their family or friends to be able to deposit at the banks on their cards for the dollar stores. The process implies added exchange commissions at home and unfavorable exchange rates in Cuba.]
I was born in Cuba in 55 and left with my parents in 59. I went back there 10 years ago and was going back and living there every 3 months for 3 months ever since. I’ve not been there These last 2 years because of Covid. It’s been very difficult and I hope to return in February 2022. Ojalá. I speak to family and friends every day and they tell me how dire there life is now. I hope things get a lot better by February. It’s just too sad for words.
Stephen,
Your writing and logic are spot on….it’s a total catch 22.
I have many friends in Cuba, and yes, they are suffering.
Joining the queue at 6.30 am, and leaving with nothing at 2.00 pm. Store empty.
Reminds me of Moscow in the 80s….thankfully, a short visit.
There’s got to be a way get the US and Cuba back in each other’s arms again. Cuba has a rich agricultural background and Florida needs agricultural products, it’d be cheaper to ship it from Cuba then from the midwest of the US. Sigh…
Many people in Cuba no longer have any source of foreign money. Even single tourist that were not good people have stopped coming and bringing in U S dollars. People in Cuba can not afford food or black market medical care. Covid is much worse than the Cuban gov says in my opinion. The Cuban gov should allow local people to rent a single room and any foreign people to bring in 20 kg of food and other basic , medical items with no tariffs. Also allow girls of 17 or years of age to spend time with foreigners without the threats of reeducation.
What exactly is “inflation”? There are academic books written on this very topic but in very simple terms inflation is too much money chasing too few goods. On the supply side of the equation, when there are very few goods, and in Cuba there are many limited goods, these goods are absolute necessities, like food items. Hence, the monetary cost must rise. This is an economic law: the Law of Supply and Demand.
The article bears this out much to the disheartened, desperate Cubans who have to go out and purchase staple food items at exorbitant prices to survive. For example, a staple item for all Cubans: “A bottle of cooking oil used to cost 50 pesos and is now selling for 200.” A whopping 300 per cent increase! And that is only for essential cooking oil. What about all the other essentials, rice, milk, etc.? How long can a Cuban sustain such increases?
The fortunate Cuban who still has a job working for a government Ministry cannot afford such exorbitant inflationary prices. The lucky few Cubans who have access to foreign currency can survive but the others have no choice but to resort to other means to survive. Under such dire economic circumstances, the society will break down.
“Inflation should just be a temporary stumble, authorities say, and the economy will recover as the pandemic passes and reforms get results.” Two points here: the economy will recover? Recover to what? Pre-pandemic? The Cuban economy prior to the pandemic was still in the doldrums. Inflation was not as high and the economy had a second, though manufactured currency CUC, which seemed to temper the economic hardship. The second point: the authorities are expecting “reforms” to produce results. What reforms and what kind of results?
For the past years the only reforms the Cuban government entertains are those reforms that tweak the economic edges with much hoopla from the propaganda machine that hails those reforms as major changes. But, as history demonstrates any reforms are minimal, unproductive, unresponsive to a mired economy that needs substantial changes. We all know Cuba is a tourism mecca for the world but is building more hotels, more tourist bedrooms the answer to moving the entire Cuban economy forward for its citizens? Additional tourist bedrooms do not feed hungry Cubans.
Further to the quoted sentence above, Cubaencuentro writes: “For example, devaluation has the objective of stimulating exports and reducing imports in the mid-term.” From a theoretical economic perspective that deduction is absolutely correct if one lives in a rich country like Canada. Reduce the value of the Canadian dollar and this definitely will stimulate Canadian made exports to other countries. Some Canadian manufacturers will be better off.
But for Cuba, how does devaluing its currency stimulate exports? What exports exactly does Cuba have or can produce en masse that will cause an influx in foreign currency to make a major difference to the Cuban economy? Cigars? Rum? Beer? Tourism can be viewed as an “export” but reducing the Cuban peso which tourists are not privy too has no impact on their discretionary spending. What Cuban exports exactly will be stimulated by a devaluation in the Cuban peso? I do not know.
The Economist, like Everleny, is correct when he says, yes, the US embargo is certainly a hindrance in implementing reforms for the long term and he says supply of all commodities on the national market need to increase significantly otherwise inflationary pressures will continue to mount. Absolutely.
For the sake of the majority of Cubans who, on a daily basis, have to fork over more and more of their hard earned money for fewer and fewer products, let’s hope these inflationary increases subside substantially.