WITH THREE continuous months of a decrease in the cost of living, the Banco de la República expects inflation to return to single digits this year.
Indeed, the Issuer’s manager, Leonardo Villar, told the media that, although he is aware that the country will return to the path of average inflation at 3% that was achieved in four years, it is possible that “by the end of 2023 I managed to get back to single digit figures.”
“Although unpopular measures have been taken, we do see that inflation is falling, but the logical thing is that the country achieves in a short time the average of 3% that the Bank established for the long term,” Villar said.
On the other hand, and for Bancolombia’s markets and researchers, it is that “after reaching its highest point of 13.3% in March, the variation of the Consumer Price Index (CPI) fell for the third consecutive month to 12, 13%, favored by the accelerated drop in food prices”.
The settings
They point out that “nevertheless, a look by components shows an inflationary persistence in the underlying component. The adjustment in fuel prices, the indexation of service rates -particularly rents-, as well as increases in electricity and gas rates, will continue to be high despite the authorities’ efforts to change this trend. Thus, we maintain our inflation forecast of 9% for the end of 2023, but we see potential pressures -due to regulations and the El Niño Phenomenon- for 2024. Only until the beginning of 2026 would inflation re-enter the Issuer’s tolerance range” .
The co-directors of the Banco de la República, indicated in the minutes that after stabilizing at a level slightly above 13% per year during the first quarter, total inflation registered consecutive decreases in April, May and June, as a result of the drop in the food inflation, downward adjustments in international prices of some foods and transportation costs, the revaluation of the exchange rate, and the reduction of producer price inflation, among other factors. The foregoing in the context of a moderation in the growth of domestic demand and a monetary policy interest rate that is located in contractive terrain.
They state in their report that “at the same time, they stress that there are forward risks in the behavior of inflation that should not be underestimated, such as the ‘El Niño’ phenomenon; the expected rises in fuel prices, and the uncertainty surrounding the international economic environment”.
In this regard, they pointed out that, despite the recent reduction in inflation, it continues at an excessively high level, which contrasts with what is observed in advanced countries and in comparable economies in Latin America, in which inflation has been reduced significantly. substantial.
The food
They added that core inflation excluding food and regulated items, especially services, has shown strong rigidity, which indicates that, except for food, significant inflationary pressures persist. In this regard, they warned that total and excluding food inflation expectations remain high and above the target at different terms, despite their recent declines.
Additionally, the directors indicated the specific risks that introduce significant uncertainty about the future behavior of inflation. Among them they referred to the effects that the ‘El Niño’ phenomenon could have on food and energy prices, as well as the high international uncertainty. They highlighted that there are risk scenarios that require leaving open the possibility of a monetary policy response, in the direction that the Board of Directors of the Banco de la República deems necessary.
In June, annual inflation was 12.13%. This is the third fall after two years with an upward trend. For its part, monthly inflation was 0.30%, 0.13% less compared to the monthly inflation of May (0.43%). The transportation division showed the highest monthly increase with 1.08%, followed by restaurants and hotels (0.56%) and alcoholic beverages and tobacco (0.48%). Inflation for the year to date was 6.15% (7.09% in June 2022).