Prices continue to rise without peaking, and Inflation in Colombia is exceeding the expectations of both the market and the Government, which therefore raises the forecasts for 2023.
(See: Inflation continues to beat measures to contain it: what is happening).
Proof of this was that the variation in the consumer price index (CPI) with which 2022 closed exceeded all estimates, and it stood at 13.12%, the highest figure in 23 years.
The Ministry of Finance, for example, already made its accounts for 2023 with less data, since in the presentation of the Financial Plan for this, which it delivered in the last days of December, it was estimated that the data with which it was going to close inflation it was 12.2%, that is, almost one percentage point below the real data.
In turn, the latest monthly survey of expectations of the Bank of the Republic projected a year-end at 12.64%, while the Financial Opinion Survey (EOF) of Fedesarrollo estimated a figure of 12.66%.
(See: 2023 ‘does not look good’: these are the predictions for the economy).
Hence several of the main players in the market have described the indicator as a ‘surprise’, which in turn would lead to new revisions in the inflation forecasts for 2023, which are around 8%.
“The upward surprise in inflation in December is a real bucket of cold water for analysts, economic agents and the authorities. Given this reality, the inflationary peak would come later than what we and most analysts previously considered”, indicated Juan Pablo Espinosa, from the direction of Economic, Sectoral and Market Research of Bancolombia.
For this reason, this entity considers that annual inflation would begin a slow moderation process only until the second quarter, and that for this reason, the Board of Directors of the Banco de la República will have no other option than to continue increasing its reference rate.
(See: Challenges to maintain and generate employment in Colombia in 2023).
Bancolombia considers that inflation is the biggest risk for 2023, and that it will remain above 13% in the first quarter.
At Banco Itaú, for example, the inflation figure with which 2022 closed and 2023 began was also seen as an upward surprise. The entity indicated that, although it was expected a slowdown in domestic demand, it is most likely that inflation will fall slowly and that the year will end above the forecast of 8% that they maintain.
“With inflation still at a high, inflation expectations still on the upside, and large twin deficits in the offing, we expect the central bank to continue raising rates this month from the current 12% to 50 basis points or more.”, indicated Itaú.
Laura Peña, BBVA Research economist for Colombia, For his part, he assured that in December the surprise came mainly from food, an item that reached an annual variation of 27.8%.
“We anticipate that the high levels of inflation will continue to be transmitted, especially during the first half of 2023, followed by a moderation of the data that may close the year at close to 8%.“, said.
A similar perspective is maintained by Banco de Bogotá. The financial entity maintained that the Bank of the Republic could promote a new increase in the interest rate in January, of 100 basic points or 1.0 percentage points, which would reach 13%.
“Depending on the evolution of inflation, additional subsequent adjustments could be necessary, even despite the evidence of a slowdown that is already taking place in the economy.”, indicated the entity.
From international banks, the situation in Colombia also draws attention. JP Morgan highlighted that the peak in inflation would occur in February, with an estimate of 13.35%. Despite this, the North American bank indicated that “continues to see some eventual relief in 2023, coming from lower food and energy prices ahead”.
(See: What follows so that another 119 rates do not rise with the minimum wage).
JP Morgan maintains its 2023 inflation forecast at 7%, somewhat lower than local players, but indicated that on average it will remain around 10.75% and will remain in double digits until August.
Another element worth noting is that inflation is well above the Banco de la República’s target of 3%, and that at this point, it is more than four times higher.
In addition, according to the projections of the different experts, this would be the third year that the indicator remains outside the range between 2% and 4% that the Issuer has defined, and although a more marked correction is expected in 2024, it would still be above this ceiling.
(See: The alternatives you have so that your rent does not go up so much).
Even though the manager of the Bank of the Republic, Leonardo Villar, has spoken that the end of the rate hike cycle is near, most analysts expect a new rise in January, to 13%.
LAURA LUCIA BECERRA ELEJALDE
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