BNP Paribas forecasts inflation of 5.5% in Colombia by 2022

BNP Paribas forecasts inflation of 5.5% in Colombia by 2022

The BNP Paribas predicted a inflation for Colombia of 5.5% during 2022increasing its latest forecast by 1 percentage point.

(Read: Closing the gap between employment and GDP, the challenge for this 2022).

Among the reasons given by the entity for the rise is a greater impact of indexation.
In October 2021, we published our forecasts for 2022, assuming that inflation would end 2021 at 5.2% per year. However, inflation was 0.4 percentage points higher (5.6%), which increased our forecast by 0.3 percentage points, considering a 70% coefficient on lagged inflation in Colombia.”, explained Felipe Klein, economist for Chile and Colombia, and Andre Digiacomo, strategist for Latin America at BNP Paribas in their report.

Experts believe that the impact of January inflation in the country (1.67%) will cause another rise in inflation forecasts, probably at 5% per year, which would mean “an increase in inflation expectations of 1.4 percentage points since the publication of our forecasts and explains the 0.4 percentage points of our new estimate.”

(Read: Rate increase is ‘ineffective against inflation’: president of Andi).

In addition, the narrowing of the output gap and the persistence of global inflationary pressures explain the remaining 0.3 percentage point of the percentage point increase by BNP Paribas.

The experts added that the inflationfrom your opinion, will worsen in the country and continue to accelerate in the coming months until reaching a possible maximum of 7.5% per year in April.

February should be another month of high inflation, driven by education prices, which are currently 10% below the pre-pandemic trend. Likewise, other non-tradable items, such as leases, should continue to exert pressure on inflation in the short term”, they assured.

(Read: Analysts see moderation in inflation during February).

And they valued that the Colombian peso could continue to be devalued due to electoral uncertainty or the tightening of global financial conditions.
Finally, for 2023, the inflation estimate they made was 4%, up 0.5 percentage points.

“The more the Banco de la República delays the adjustments, the more expensive it will be to control the increase in inflation, for this reason we consider that the issuer needs to send a signal to stop the increase in inflation expectations. We see high odds of a 150 basis point hike at the March meeting. In theory, our Taylor rule model points to an interest rate of 7%”, they closed.


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