Falling Inflation Has Reduced the Risk Of Political Instability In Costa Rica In 2023

• Fitch Solutions has revised its Short-Term Political Risk Index (STPRI) score for Costa Rica from 61.1 to 62.1 out of 100, indicating an overall lower level of political risk in the market.
• The upward revision comes on the back of lower and falling inflation, which has boosted the ‘Social Stability’ component of the index from 53.8 to 57.5 out of 100.
• Inflation has fallen dramatically from its multi-year peak of 12.1% y-o-y recorded in August 2022 to an average of 5.9% in Q123 and 0.8% in Q223. Most of this is driven by falling global commodity prices including food and fuel as well as base effects following a period of persistently high inflation. 
• Fitch believes that inflation will average 3.1% in 2023, closer to the 2017-21 average of 1.7%. Low inflation typically bodes well for social stability by minimising the extent of discontent and reducing the risk of any unforeseen change in public opinion that may lead to unrest, especially given unemployment consistently exceeds 10.0% (10.6% in Q123).
• That said, risks of another downward revision to the ‘Security/External Threats’ component of the index are increasing given the continually rising homicide rates in the country.

(Source: Fitch Solutions)