Dollar: why when it is high everything goes up, but if it goes down, prices don’t

The dollar has registered several days of volatility at the start of 2023. The foreign currency rebounded in the first weeks of January to later register a significant drop that places it in the range of 4,600 to 4,800 pesos.

(Read: Peso vs. dollar: Colombian currency was revalued at $161.50 in January).

Through social networks, citizens have expressed doubts as to whether, with the rise in the dollar, various items go up in price, but if it goes down, You don’t see the same decline in prices. Because?

For Hernando Zuleta, a professor at the Faculty of Economics at the Universidad de los Andes, we must start from lthe idea that it is expensive to be adjusting prices often.

It is also a matter of perception from the market. “In general, inputs rise when the exchange rate rises, because it is part of the cost. Given that the exchange rate has shown high volatility, lowering the prices of inputs when the exchange rate falls can be risky since there may be rebounds in the exchange rate, and it will rise“, Zuleta explains.

This implies an asymmetry in the price adjustments as a result of the variations in the exchange rate.

(Also: Fluctuation of the dollar would impact tourism in Colombia in 2023).

“If we had a lasting drop in the exchange rate and that people expect the exchange rate to drop, then we could indeed speak of a drop in the prices of inputs,” the expert points out.

In this sense, as long as uncertainty persists and this idea that the dollar will eventually rise again, people decide not to lower pricesaccording to expert analysis.

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