Sunday, February 3, 2008

Inflation in Puerto Rico or how to lie with statistics

According to newspaper reports Puerto Rico has now been in a recession for almost 2 years and the threat of recession in the USA ( see, among others the January job loss of 17 000 as a predictor in todays New York Times), in addition to purely domestic factors make a speedy recovery highly unlikely.

The recession is hard to hide: even for a casual observer it is visible in the myriads of "for sale" and "for rent" signs not only all over the island, but also all over such a coveted piece of real estate like Old San Juan, where in January 2007 hardly any of those signs could be spotted, while in November and December of the same year it seemed like the wole old town wanted to be sold or rented.

For a casual newspaper reader it is visible in the reports of an unemployment, which for the island as a whole approaches 14%, while in the two hardest hit districts it is already at an alarming level of en economic depression - close to 25%. Imagine - every fourth able bodied person unemployed! It is also visible in reports of more pharmaceutical companies closing their operations in Puerto Rico and moving them elsewhere - or nowhere.

If you are interested in learning more about the economic situation in Puerto Rico I'd like to send you to Banco Popular's very thorough analysis in its bilingual report Economic Progress/Progreso Economico.

Here I only want to mention one funny attempt by Puerto Rican authorities to hide the level of inflation, that accompanies the recession: They simply changed the shopping basket of goods and services used in calculating the Consumer Price Index, which, in turn, is used to assess the level of inflation.

According to the old shopping basket the inflation in Puerto Rico in 2007 exceeded 15%.

But the government waved its magic wand, changed the shopping basket, and voila, the inflation in Puerto Rico now officially is "only" 6%.

And people think that government bureaucrats lack inventiveness and sense of humor. How unfair!

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