I am in Ecuador and have a message from one of the sharpest bankers I know that explains why prices are rising despite dollarization. Here is what he said.
“Dear Gary, you may recall that two weeks ago we spoke about Ecuadorian inflation, and that I think that it is not inflation but price corrections and an indicator of asset prices having bottomed out.
Walter Spurrier has been quoted in El Telegrafo along similar lines, and I have translated the main part of the article for you as follows:
El Telegrafo Guayaquil, November
Spurrier: Prices will have to recuperate
Walter Spurrier, the well known economic analyst, pointed out that inflation in Ecuador was due to the rapid depreciation of the currency, to a level of Sucres 25,000 per Dollar. This reflects an enormous devaluation which has not been compensated yet, “but prices will have to go up to the level, expressed in dollars, they had prior to the dollarization.
Spurrier indicated that the Government delayed the increase of inflation in the first months of the year as a result of reaching an agreement with industry and transport so as to maintain the price of fuel, gas, electricity and telephone services.
Furthermore, he said that the Ministry of Education had stopped tuitions from rising at schools, and that these adjustments will have to take place, but instead of happening during this year, they will take place in 2001. As a consequence, although the rate will decrease, inflation will continue during next year.
He pointed out that the prolonged poor economic policies have impoverished the country and pushed the poorer person's consumption levels to unacceptable levels. However, the solution is to create the conditions for an increase in investment, which will generate higher employment.
In this sense, he pointed out that the solution is not to set “political” prices, for these lead nowhere. The solution must be directed to improve investment, and this is not being done with the required diligence.
He added that the President, Dr. Gustavo Noboa Bejarano, would have to make further adjustments as soon as possible so as to reduce the expectations of inflation and these are to be made in products and services provided by the state and those of the private sector which have controlled prices.
I am with a group of 45 investors looking at real estate right now. For details on our next trip contact firstname.lastname@example.org
Until then, good global investing!