Diverse elements have driven inflation in the Cuban economy in the early 2020s, but the big-bang devaluation of the peso in 2021—the key measure that unlocks monetary reform—stands out as the main determinant. Analysis indicates that the inflation rate ranged between 174% and 700%, well above the government’s 2021 consumer price index estimate (77%) and closer to the deflator of household consumption derived from the national income accounts (442%). Even with this larger inflation, there is room for a real depreciation of the peso in the short term. The relative rise of tradable goods prices and incomplete pass-through from the exchange rate to inflation create new incentives and enhance financial transparency in the short term. However, the absence of sufficient structural reforms, the complex macroeconomic scenario, and the persistence of high fiscal deficit, inflation, and devaluation of the peso in the informal market after 2021 put most of the potential benefits of the monetary reform at risk. Monetary instability is a deep, continuing problem.
