Who Bears the Cost of Devaluation? Price Dynamics and Welfare Impacts During Bolivia’s 2024-2025 Currency Crisis

T his paper dissects the asymmetric price and welfare consequences of Bolivia’s de facto 60% exchange rate devaluation using high-frequency scanner data from a national supermarket chain. Despite no formal float, consumer prices rose by 15% –with imported goods jumping 16.8% and domestic goods lagging at 9.2%. The inflation burden fell unevenly: while the cost of high-income households’ baskets increased more (17.6%), their superior substitution elasticity allowed them to buffer welfare losses to 10.9% by shifting toward cheaper or newly available alternatives. In contrast, low-income households faced smaller price increases (14.5%) but larger welfare losses (13.4%) due to low substitutability and rigid consumption patterns tied to essential imported staples.

A nested CES demand model quantifies these effects and decomposes the cost-of living impact into four components: marginal cost pass-through, retail markup adjustments, substitution, and variety change. We find that poor households face full cost transmission with negligible margin relief or substitution escape routes, while the rich enjoy strategic price shielding. Microsimulations show this wedge exacerbates poverty by 2.6 to 3.8 points and worsens inequality, with the Gini index rising up to 0.7 points. The findings underscore that in segmented economies with essential imports and limited substitution at the bottom, devaluation can be both inflationary and inequality –enhancing– even in the absence of formal price liberalization.