Inflation in Ecuador

A short history of inflation in Ecuador

The Banking Crisis and Dollarisation (1999 to 2000)

Ecuadorean inflation peaked at 107.9% in the year to September 2000, the only time in this record it passed 100%. A banking crisis through 1998 and 1999 closed a large part of the financial system; deposits were frozen in March 1999, and the sucre fell from around 7,000 to the dollar to 25,000.

In January 2000 the government announced it would abolish the currency altogether and adopt the US dollar at that rate. The peak came after the announcement rather than before it, because a devaluation reaches shop prices over the following year rather than the following week. Inflation was still above 20% through 2001, below 17% in 2002 and down to 4% by 2004, and it has stayed low since. What ended was not Ecuador's exposure to the world but its government's ability to pay bills by printing money.

Post-Covid Inflation (2021 to 2023)

In Ecuador, prices rose fastest in June 2022, at 4.2%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.