Virtually No Inflation in Ecuador
Inflation in Ecuador remains below three percent while there is virtually no unemployment. This comes as no surprise to me as I anticipated this when making my decision to retire here ten years ago. A consequence is the significant increase in my Social Security check in January will mean an actual increase in my buying power instead of a retrograde as it is for recipients living in the United States.
So why is inflation so low here? First, Ecuador is energy independent. We have hydroelectric power [Okay, it only operates at half its projected potential thanks to the incompetent China contractors who built it but it’s half more than we had before.] Ecuador also produces its own oil. There is no meaningful suicidal political movement against pumping oil. Unfortunately, the government never keeps its promises to preserve the Amazon where the oil rigs are located but it doesn’t slow development a bit. Being energy independent means outside economics do not drive its cost up and, as the U.S. is learning, energy costs drive up all prices for everything.
Second, Ecuador is food independent. We have some of the most fertile topsoil in the world and can grow anything. True, we import a fair amount of our fruits from Chile as the quality is better but we have plenty of our own fruits. We grow all our vegetables and produce all of our meat. Cattle are grazed in the Amazon [There are no feedlots in Ecuador.] and the use of growth hormones, massive antibiotics and blackened chicken coops are not only illegal but unconstitutional. Food here is entirely natural and what a difference it makes in health and taste. If you haven’t experienced it, you can’t imagine how different. We do import some luxury food items but they appeal to a small niche of consumers and have no meaningful effect on inflation. The only catch in food is that we do not grow wheat. There is a tiny movement to encourage bread production from bananas [I’ve never had it but am told it is wonderful.] but it hasn’t taken off. So far bread prices are relatively stable and I expect the government to subsidize wheat if necessary to prevent social unrest if bread prices rise significantly.
Third is real estate. No Ecuadorian with any sense trusts the banks here. During the economic collapse of 1999 nearly everyone with any money lost their fortune and were left with real estate. The banks are not insured by the national government and even if they were no one would trust them as Ecuador routinely defaults on its sovereign debt. The consequence is that cash is kept out of the country, Panama and the U.S. primarily, and the rest goes into apartments and houses for rent. Taxes on real estate are ridiculously low [ten dollars a year] and no one insures property as it is virtually fire proof and protected by armed guards. You can sit on unoccupied property indefinitely and many do. Cuenca, and I believe the rest of Ecuador, is awash in available apartments and houses and as a result rentals are very low, very low. Add to that incredibly low utilities and there you have it.
And that’s pretty much it. There are imports of course but they don’t have much effect on the cost of living for most people. If cars go up in price, don’t buy one, or buy a used one. Replacement parts for certain heavy equipment will go up as will the equipment itself but these costs are minimal against the entire economy.
If in considering this you recalled that the United States can be energy independent but has elected not to be you are getting it. It is food independent but as a big country it needs energy to transport it to the consumer.
Countries usually are what the elect to be. Sometimes outside forces dictate otherwise but most of the time they don’t. Ecuador has placed itself into a position to manage inflation, other countries, the U.S. and Europe, have decided the opposite.