How do $ value changes affect Peru vs Ecuador

[19naia]

So its obvious to me that when $ values go up or down, the amount of Soles that i get also goes up and down which affects my buying power in Peru... Right now its favorable...

I am not so clear what effects any changes have in Ecuador where they use the $ but have their prices set to mingle with the region..Prices similar to Peru.. Does it cause price inflation in Ecuador when the $ value falls and then cause deflation of prices when the dollar value rises?

Its hard to figure since i haven't been around there long enough to observe any long cycle changes. Ecuador Currency is riding the US, but their market and prices are riding their south american region's economy..

Any experience to offer for how it really goes during $ value changes in them parts?

[chi chi]

Prices in Peru go up all the time so the increase of the value of the dollar won't make a difference in your buying power.

[Sergio Bernales]

It means, the terms of trade for Ecuador have gone from bad to awful, which should in the medium to long term lead to lower prices and probably outright deflation. There is also a good chance of a balance of payments crisis as oil accounts for 40% Ecuador's exports and the price has more than halved in the last year. Not only that, government depends on oil for most of its income, so it will have problems paying its workers, social services, etc, and the country will struggle to pay its bills to foreign creditors. Expect perhaps another deal with China to sell cheap oil to get loans and lots of strikes as government employees are either sacked or their wages cut.

However, in the short term, there will be little difference in prices, as businesses are reluctant to lower prices and workers are unwilling to take pay cuts. However, as government and employers try to respond to more difficult economic conditions with the exchange rate acting against them, the most likely outcome in the near term is political instability in Ecuador.

In response to chi-chi-nomics, the inflation rate in Peru as of February 2015 is 2.77% adjusted on a yearly basis. The sol has dropped 8.2% against the dollar in a similar period, therefore, the purchasing power of the US dollar has increased significantly. You'll get more bang for your buck. Expect the dollar to keep rising and the sol to keep falling, as the prices of the commodities that are Peru's main exports, such as copper, remain depressed.

http://ieconomics.com/peru-inflation-rate-forecast

http://www.bloomberg.com/news/articles/ ... eat-to-cpi

[teamoperu]

Prices in Peru go up all the time so the increase of the value of the dollar won't make a difference in your buying power.

Nonsense.

[Alpineprince]

It means, the terms of trade for Ecuador have gone from bad to awful, which should in the medium to long term lead to lower prices and probably outright deflation. There is also a good chance of a balance of payments crisis as oil accounts for 40% Ecuador's exports and the price has more than halved in the last year. Not only that, government depends on oil for most of its income, so it will have problems paying its workers, social services, etc, and the country will struggle to pay its bills to foreign creditors. Expect perhaps another deal with China to sell cheap oil to get loans and lots of strikes as government employees are either sacked or their wages cut.

However, in the short term, there will be little difference in prices, as businesses are reluctant to lower prices and workers are unwilling to take pay cuts. However, as government and employers try to respond to more difficult economic conditions with the exchange rate acting against them, the most likely outcome in the near term is political instability in Ecuador.

In response to chi-chi-nomics, the inflation rate in Peru as of February 2015 is 2.77% adjusted on a yearly basis. The sol has dropped 8.2% against the dollar in a similar period, therefore, the purchasing power of the US dollar has increased significantly. You'll get more bang for your buck. Expect the dollar to keep rising and the sol to keep falling, as the prices of the commodities that are Peru's main exports, such as copper, remain depressed.

http://ieconomics.com/peru-inflation-rate-forecast

http://www.bloomberg.com/news/articles/ ... eat-to-cpi

Good analysis!

[19naia]

It means, the terms of trade for Ecuador have gone from bad to awful, which should in the medium to long term lead to lower prices and probably outright deflation.

Thats what i was wondering.. Its easier to wrap my head around exchange rates between two different currencies, but not as easy to wrap my head around economic adjustments between two very different class of economies using the same currency.. It seems like it would have to deflate in Ecuador, but i wasn't sure exactly what the backbone parts of their economy are... For all i could see, it could possibly benefit Ecuador being that they have dollars and that would trade well in their favor for imports from countries who's currency is falling behind the dollar... But its always more complex than that when they are so tied into the regional economy that includes Peru ,and they are all trying to grow into earning from exporting.. Exports is where they suffer when their dollar price becomes too much to attract foreign buyers who end up having to pay more because their currency doesn't convert favorably into the $ Ecuador uses..

Thanks

[chi chi]

In response to chi-chi-nomics, the inflation rate in Peru as of February 2015 is 2.77% adjusted on a yearly basis. The sol has dropped 8.2% against the dollar in a similar period, therefore, the purchasing power of the US dollar has increased significantly. You'll get more bang for your buck. Expect the dollar to keep rising and the sol to keep falling, as the prices of the commodities that are Peru's main exports, such as copper, remain depressed.

If the dollar goes up then the rough traders will just increase the special ''gringo prices''.

I expect that especially the taxi fares at Jorge Chavez will be beefed up for gringos as they assume that gringos hopping off a flight have ''harta plata''. And that they brought even more plata with them than ever before.

[teamoperu]

In response to chi-chi-nomics, the inflation rate in Peru as of February 2015 is 2.77% adjusted on a yearly basis. The sol has dropped 8.2% against the dollar in a similar period, therefore, the purchasing power of the US dollar has increased significantly. You'll get more bang for your buck. Expect the dollar to keep rising and the sol to keep falling, as the prices of the commodities that are Peru's main exports, such as copper, remain depressed.

If the dollar goes up then the rough traders will just increase the special ''gringo prices''.

I expect that especially the taxi fares at Jorge Chavez will be beefed up for gringos as they assume that gringos hopping off a flight have ''harta plata''. And that they brought even more plata with them than ever before.

The taxi fares at Jorge Chavez have not increased. With the drop in fuel prices, they are doing just fine.

[Sergio Bernales]

In response to chi-chi-nomics, the inflation rate in Peru as of February 2015 is 2.77% adjusted on a yearly basis. The sol has dropped 8.2% against the dollar in a similar period, therefore, the purchasing power of the US dollar has increased significantly. You'll get more bang for your buck. Expect the dollar to keep rising and the sol to keep falling, as the prices of the commodities that are Peru's main exports, such as copper, remain depressed.

If the dollar goes up then the rough traders will just increase the special ''gringo prices''.

I expect that especially the taxi fares at Jorge Chavez will be beefed up for gringos as they assume that gringos hopping off a flight have ''harta plata''. And that they brought even more plata with them than ever before.

I have no idea what you're talking about. The price of Green's Taxis, the most commonly used secure taxi service from Jorge Chavez, are clearly listed on the board at their desk as you leave baggage reclaim area and enter the airport. They have not changed since the dollar began its ascent, nor for some time before that.

If you're referring to street taxis, then your statement makes even less sense, as anyone confident or naive enough to use a street taxi is taking a risk and that has always been the case - there is a risk in these transactions that someone will be overcharged, ripped off, robbed or worse.

[Sergio Bernales]

It means, the terms of trade for Ecuador have gone from bad to awful, which should in the medium to long term lead to lower prices and probably outright deflation.

Thats what i was wondering.. Its easier to wrap my head around exchange rates between two different currencies, but not as easy to wrap my head around economic adjustments between two very different class of economies using the same currency.. It seems like it would have to deflate in Ecuador, but i wasn't sure exactly what the backbone parts of their economy are... For all i could see, it could possibly benefit Ecuador being that they have dollars and that would trade well in their favor for imports from countries who's currency is falling behind the dollar... But its always more complex than that when they are so tied into the regional economy that includes Peru ,and they are all trying to grow into earning from exporting.. Exports is where they suffer when their dollar price becomes too much to attract foreign buyers who end up having to pay more because their currency doesn't convert favorably into the $ Ecuador uses..

Thanks

You've pretty much got it in a nutshell. If their currency has increased in value by 20% in the last year or so, then exporters to regional markets have to cut prices or they're going to lose market share. The only alternative is to increase productivity, reduce prices and accept lower margins, or stop exporting. Worst of all, Ecuador's main export, oil, priced in dollars, has more than halved in value. In the past high oil prices meant government spending could offset the damage done by a high dollar to private business. Moreover, with their own currency, they could devalue to retain competitiveness. But these options are all closed and Ecuador is in a tight spot.

The only positive thing for Ecuadorian people is that in the short term, imports are going to get cheaper. That'll be great for the many Ecuadorian people who want to buy a brand new Korean telly, but the higher the dollar goes, the less competitive Ecuadorian industry becomes and the more likely Ecuadorian business has to sack workers. Expect Ecuadorian bananas, Panama hats and other export staples to go up in price and Ecuadorian businesses, workers and government to suffer the consequences of this squeeze. So unless the oil price recovers, there is no way the country can pay its bills. US expats in Cuenca, expect some instability.