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.

By Cubaencuentro

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.]

Read more from Cuba here on Havana Times.