Unemployment would have altered inflation in Colombia compared to that of other countries

Unemployment would have altered inflation in Colombia compared to that of other countries

A study prepared by Edgar Caicedo, Adolfo Cobo, Margarita Gáfaro and Alejandra Gonzalez, researchers from Banco de la República, shows how since the second half of 2021, Food prices in Colombia they grew on average 12 percentage points more than in the other OECD countries and 7 percentage points more than in the rest of Latin America.

(Inflation in November “would take a breather” given the pace of its rise).

According to the report, this change in the behavior of food price increases coincides with the start of the road blockades due to the national strikeand not because of the devaluation of the currencies, the excesses of rains, nor because of the imports of inputs and exports of food in Colombia.

The figures indicate that the road blockades during the strike affected agricultural production in the country, with effects that still persist in some sectors.

According to the data provided in the investigation, which are based on the statistical reports of Monetary Policy, Until April 2021, these price differences were close to 2 percentage points and remained constant over time.

However, in May 2021, food prices in Colombia grew 6 percentage points more than in the rest of the countries.

(Inflation will remain high until mid-2023, says Corficolombiana).

This price increase in Colombia, relative to other countries, is not only maintained, but continues to grow until March 2022. Thus, Between May 2021 and July 2022, annual food inflation in Colombia grew on average 9 percentage points more than in the rest of the countries in the sample.

The econometric methodology of this report discounts the effect of factors such as currency depreciation, rainfall, the effect of international price shocks due to imports and exports of raw materials and food, among others. That is to say that these factors are not explained there.

“The coincidence between the moment in which this discrepancy in food inflation occurs and the start of the national strike suggests that these price increases could be associated with persistent effects of the strike on food production in the country,” says the report.

During the strike, which began on April 28, 2021 and lasted approximately two months, there were roadblocks that affected the food supply in the main cities and access to raw materials from farms, particularly in the southwestern part of the country.

“This generated immediate pressure on prices, by causing a shortage in the cities. It also generated persistent pressures on production, by affecting the growth cycles of animals on livestock farms and the cash flows of producers for the replanting of transitory crops”adds the study.

(Gasoline price adjustments affect transportation and fiscal accounts).

Egg production was one of the most affected by this phenomenon. Between January 2020 and April 2021, egg production grew at an average annual rate of 12%. As of May 2021, this growth falls to an average of -1%, while prices show average annual growth of 23%.

According to the report: “The lack of feed for birds on farms in the southwest, which produces about 30% of the total in the country, affected the development of breeding and laying birds, with effects on production that, according to industry informants, they would take up to 2 years to dissipate. All this also occurred in a situation of strong demand and high input costs that could exacerbate the effects of these falls in production on prices”.

The statistical techniques used in the study do not completely rule out that other specific factors of the Colombian economy explain part of the price differences between Colombia and other countries. However, the impact that the road blocks generated in the cycles of food production and distribution suggests that unemployment is a relevant factor to explain them.

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