Cabo Verde-  Prices and Cost of Living

Prices and Cost of Living: A Welcome Breather

After the shock of 2022, when prices seemed to jump every time you visited the store, Cape Verde has entered a period of stabilization. For families and businesses, 2024 and 2025 represent a return to relative normalcy, though the islands remain expensive compared to many peers due to structural reliance on the outside world.

Here is a breakdown of what is happening with your wallet, why the cost of living behaves the way it does, and what the data says for the near future.

1. Inflation in Simple Terms: The Speed Limit

To understand the current economy, we must look at inflation—not as the price of things, but as the speed at which those prices rise.

• The 2022 Shock: In 2022, Cape Verde experienced an inflation rate of 7.9%, the highest in 20 years. This was a race car speed, driven by the war in Ukraine and global supply chain breaks.
• The 2024 Brake: In 2024, the "speed" dropped dramatically. The average annual inflation rate fell to 1.0%. Prices are still high compared to three years ago, but they have largely stopped climbing.
• The 2025 Outlook: Projections indicate a slight acceleration, with inflation expected to settle between 1.7% and 2.4%. This is considered a healthy, "cruising speed" that aligns with the Eurozone.

The Big Three: Food, Energy, and Transport

In Cape Verde, the cost of living is dictated by three main categories. Here is how they have performed recently:

A. Food: 

The Import Trap Cape Verde imports between 80% and 90% of its food. This makes the price of cachupa ingredients highly sensitive to global events.

• Recent Trends: The sharp drop in inflation in 2024 was primarily due to falling global food prices. Food inflation plummeted from 8.9% in 2023 to 1.0% in 2024.
• Vulnerability: Despite this relief, the cost of food remains a critical issue for poverty. Poor households in Cape Verde spend a massive portion of their income—sometimes up to 60%—on food, meaning even small price hikes can trigger food insecurity.

B. Energy: 

High Costs, High Stakes Energy prices in Cape Verde are among the highest in Africa. In 2022, the average residential tariff was approximately $0.345 per kWh.

• Why is it expensive? The country relies on imported fossil fuels for about 84% of its electricity generation. When global oil prices spike, electricity bills in Praia and Mindelo follow.
• Recent Trends: In 2024, energy prices stabilized and even contributed to negative inflation in some months due to lower international oil prices. However, the structural cost remains high, prompting the government to aim for 50% renewable energy by 2030 to permanently lower bills.

C. Transport: 

The Archipelagic Premium Moving people and goods between islands is a major expense.

• Inter-island Shipping: Tariffs for maritime transport have historically lagged behind inflation, leading to a subsidized model. Recently, price adjustments were introduced to reflect real costs, including a differentiated pricing scheme where foreigners pay 80% more and residents pay 20% more for certain cargo services.
• Fuel Impact: Transport inflation dropped to near zero or negative territory in early 2024 (-0.1% in some measures), providing relief to commuters and distributors.

The Impact of Imported Goods

The most defining feature of Cape Verde's cost of living is "Imported Inflation." Because the country produces only about 10-15% of the food it consumes and has no fossil fuel reserves, it essentially imports its cost of living.

• The Euro Shield: The Cape Verdean Escudo (CVE) is pegged to the Euro (€1 = 110.265 CVE). This is a vital economic shield. Unlike other African nations that see their currency crash and import prices skyrocket, the peg keeps the cost of imported European goods stable.
• The Trade-off: While the peg stabilizes prices, it means the Central Bank of Cape Verde (BCV) must keep interest rates high (raised to 2.25% by December 2024) to track the European Central Bank. This keeps inflation low but can make borrowing money for a house or business more expensive.

Summary

For 2024 and 2025, the storm of high prices has passed. Inflation has returned to a manageable 1% to 2% range, largely because global markets for food and oil have calmed. However, the high baseline cost of energy and the near-total reliance on imported food remain structural challenges that keep the everyday cost of living high relative to average incomes.