The price of war: Recalculating inflation in Peru during the Pacific War era

This study reassesses Peru’s inflation dynamics during the Pacific War by incorporating alternative exchange rate methodologies that account for the widespread use of paper currency ( sol en billete ) in domestic transactions. Using archival sources from Lima’s principal newspapers and government documents, combined with price series from Seminario (2016) and Boloña (1993), this analysis reveals that conventional silver-based exchange rate assumptions systematically underestimated wartime inflation. The recalibrated methodology shows inflation peaking at nearly 180 percent during the war’s most intense phase, contrasting dramatically with previous silver-based estimates suggesting price stability. Contemporary currency spread evidence demonstrates the sol en billete depreciating over 1000 percent relative to silver currency between 1879–1880, validating the magnitude of monetary instability captured in our reconstruction. These findings position the Pacific War as one of Peru’s most severe inflationary episodes, averaging over 30 percent annually during the conflict period, rather than the mild deflation suggested by conventional approaches. This historical perspective reveals Peru’s modern era (1997–2025) as its longest period of monetary stability in over three centuries. The corrected estimates align with broader patterns of wartime monetary instability across Latin America while demonstrating how exchange rate methodology choices fundamentally alter historical narratives. This framework offers broader applicability for reassessing historical inflation in dual-currency environments during institutional transitions.