The cost of living in Colombia apparently has ceased to be a top-level risk in the local market, especially after the August data presented by Dane, in which beyond the 0.0% in the monthly variation, attention was focused on the new annual contraction, which was 5.31 percentage points. below what was seen in the same period in 2023, when it was at 11.43%.
In this report, food inflation was the main protagonist, as it stood at 3.38%, decreasing by 188 basis points compared to the figure for the previous month. The decrease was driven by a significant reduction in the processed food sub-basket, whose inflation went from 10.5% in July to 5% in August. This major adjustment occurred due to significant decreases in sub-classes such as potatoes, onions and vegetables.
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And it is that after 6.12%; which will be the current inflation until The Consumer Price Index for September was updated, and the National Government itself came out to celebrate the results, highlighting that the country has had inflation under control for 17 months and can now begin to focus on other issues such as economic reactivation or strengthening confidence.
For example, President Gustavo Petro took the opportunity to tell the Bank of the Republic that “some people did not expect it. Inflation in August was 0%. Zero. There is no longer any excuse for not lowering the interest rate and reactivating the economy,” reinforcing the old controversy over pressures on the issuer.
Inflation
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One of the points that stood out most in the different analyses is that when inflation is measured excluding volatile goods, such as the price of food and regulated items, there is also progress.
The lowest
For Jackeline Piraján, economist at Scotiabank Colpatria, “this inflation fell to 6.78% and is more or less the lowest inflation that has been seen since May 2022, which is also good news. In terms of general dynamics, it is observed that the price of goods is currently at an inflation rate of less than 1%, although the inflation of services continues with inflation above 7%, it has shown significant moderations.”
The expenditure divisions that showed the greatest monthly variation in August were Restaurants and hotels (0.31%); Accommodation, water, electricity and gas (0.30%); Alcoholic beverages and tobacco (0.22%); Health (0.17%); Transport (0.13%); Clothing and footwear (0.06%) and Household goods and services (0.02%).
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As for those that had negative monthly variations, they arein order: Food and non-alcoholic beverages (-0.68%); Information and communication (-0.40%); Recreation and culture (-0.22%); and Education (-0.16%). The only data that did not show any variation was that of Miscellaneous goods and services.
Coming?
That said, three different views on what to expect with the cost of living indicate that everything is getting back on track and that, although there are current pressures, there are no major risks that could alter the downward trend that this indicator has already taken, which would close close to the levels projected by the Government.
Inflation
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This is the case of Investigaciones Bancolombia, which projects a closing below 6.0% for the end of the year, although with a slow process. Factors such as indexation, the adjustment of the price of diesel fuel, and weather conditions, such as a possible La Niña phenomenon, could slow down the rate of reduction. In addition, they warn that volatility in the exchange rate and rising toll rates can also add inflationary pressures.
“Furthermore, the ups and downs of global markets may add volatility to the exchange rate, with plausible repercussions on gas rates and goods prices. Conditions would continue to be in place for annual inflation to decline, and that is why we reaffirm our view that the process will be slow and the risks remain tilted to the upside. However, given the recent news, we are currently evaluating our current point forecast (5.7%),” they explained.
Meanwhile, for Jackeline Piraján of Scotiabank, Despite the temporary impacts on food prices due to the strike in September, the Bank is confident that inflation will continue to fall. This scenario raises the possibility that the Bank of the Republic will accelerate interest rate cuts to boost economic recovery.
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“It seems that prices in Colombia are normalizing. Although during the month of September there were impacts on the prices of perishable foods due to the strike, it is possible that due to its short duration, this effect of increasing prices may be reversed in the remainder of the month and allow inflation to continue to fall.
Finally, Laura Katherine Peña, from BBVA ResearchBBVA projects that inflation will continue its downward trend for the remainder of 2024, with a gradual reduction in sectors such as services, electricity, fuels and rentals. Despite this trend, BBVA warns that price indexation, climatic factors such as the La Niña phenomenon, and adjustments in fuels and tolls could generate risks that limit a more accelerated fall in inflation.
Inflation
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“Without food, inflation is expected to continue to gradually fade in persistence in baskets such as services, in addition to downward base effects from sub-categories such as fuel, electricity and rent. On the other hand, uncertainty remains regarding the effect of climatic factors and inflationary inertia factors,” concluded this expert.
In this way, if there are no urgent changes in the outlook, the possibility is created for the cost of living to further reduce the pressure it exerted on the economy and for the country to advance in the recovery and consolidation of its economy, a point at which it is also important to urgently move forward with a reactivation plan.
