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Government and businessmen will work to tackle inflation

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Government and businessmen will work to tackle inflation

After DANE revealed that in March of this year the country reached 13.34% annual inflation, the highest in 24 years, the government and businessmen agreed to jointly promote measures to contain the high cost of living that is affecting Colombian families.

Indeed, President Gustavo Petro announced an agreement with the National Association of Businessmen (ANDI) and the Colombian Farmers Society (SAC) to design and implement measures to reduce food prices to benefit the pocket of Colombians.

Through his Twitter account, the head of state stated that; “Inflation for food, low-income households, and agribusiness products continues to decline. We have agreed with the businessmen, @ANDI_Colombia and @SAColombia to design and implement measures to reduce food prices”.

In this regard, the president of the SAC, Jorge Bedoya, expressed his willingness to work jointly with the Government to help consumers.

“The raison d’être of food producers are consumers. From @SAColombia we are ready to work together on the design of measures on the factors that affect the costs of producing food in Colombia and that affect inflation, ”Bedoya highlighted on her Twitter account.


Likewise, the president of ANDI, Bruce Mac Master, also referred to the need to agree on solutions. On Twitter he said: “Extraordinary situations such as increases in inflation require everyone’s efforts. We have agreed to work together to find solutions. There are macro issues and micro issues that are affecting prices and the economy, they must be solved,” the union leader wrote on the social network.”

According to Juan Pablo Espinosa, director of economic research at Bancolombia, “this month’s result has a mixed reading given the positive moment that the food item has been showing, which is offset by the inflationary persistence of the basic component. In this sense, the indexation effect would continue to be latent in the dynamics of services, especially in rental rates, which represent approximately a quarter of the total CPI”.

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In his analysis of the March result, he says that; “On the positive side, we anticipate that this trend observed in food would continue until at least July of this year, the month in which an ‘El Niño’ climatic phenomenon could begin. By incorporating the lower volatility of the exchange rate, the reduction in the price of urea, nitrogen and food at a global level, in addition to the return of maritime freight at 2019 prices and the 60% probability of the onset of droughts During 2023, we project that food inflation would end the year below 9%.”

higher pressures

On the contrary, the persistence of the indexation effect in the services category and the greater pressures in the regulated sector would mean that the gains in food are not fully translated into the total variation of the CPI. On the services side, rental rates and accommodation services would lead this segment to end the year around 9%. The expert believes that “the constant increases in gasoline would be the main catalyst for high levels in the regulated item, where electricity rates would also do so, when the El Niño weather phenomenon materialized.”

On the other hand, the researcher says that “in the case of the item of goods, the accumulation of inventories at the end of 2022 and in the first months of 2023, the recent stabilization together with the expected appreciation bias of the dollar in the coming quarters, and the weakening of household consumption would limit the ability of prices to continue with their vertiginous upward trend. On this point, we consider that the inflation of goods would end the year at around 7%”.

Therefore, with year-end inflation close to 8.5% for food and basic inflation of 9.15%, “we anticipate that inflation would end the year at 9%. Given the determinants already mentioned, we expect the Board of Directors of Banco de la República to decide once again to increase the repo rate by 25bp at its meeting at the end of this month”.

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High levels

For her part, Laura Katherine Peña, BBVA Research economist for Colombia, regarding the inflation data said that; “In March, monthly inflation was 1.05% and annual inflation was 13.34%, close to the expectations of market analysts (which according to the Banco de la República expectations survey was an average of 0.99 %) and that expected by BBVA Research”.

The researcher maintained that “core inflation accelerated 56 basis points in the annual variation compared to the February data, reaching 11.42%. The dynamic within inflation is a slowdown in the food basket, while core inflation continues to accelerate in the annual comparison. Food inflation continued to slow down in annual terms in March, falling by 235 points and settling at 21.8%”.

Peña explains that; “In goods, vehicles and household cleaning and personal hygiene products continue to play the leading role, associated with high external prices, leading to an acceleration of the basket of 70 points in annual terms, reaching inflation of 15.1%. At BBVA Research, we expect inflation to maintain high levels for a few more months and start to decline moderately in the second half. Thus, we maintain the inflation expectation for the end of 2023 at 9% and for 2024 at 5%”.

The impact

In turn, the president of the Colombian American Chamber of Commerce (AmCham) Colombia, María Claudia Lacouture, mentioned that; “For the third consecutive month, inflation registers a sustained drop, with 1.05% in March, however, it is 0.5 percentage points higher than that of March 2022, according to information from Dane. Despite this, families continue to feel in their daily budget that the prices of basic products remain high, particularly food and public services that impact all Colombian households, regardless of social class.

Indicates that; “The productive sector is also suffering from inflationary pressure and the effects of the tax reform. Many companies have stopped and others are having problems due to the cost of inputs and the high cost of energy and fuels that are inevitably passed on to the final consumer. And to this must be added the uncertainty of the reforms that are going through Congress, especially the labor reform that, as it is proposed, could mean new costs and more productive difficulties and more inflation”.

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The union leader points out that; “The labor reform should foster conditions to create formal and stable employment, contribute to economic balance, so that the business fabric continues in a position to contribute to the State’s finances and there is employment. Companies are the union of people who together seek development, their viability and operation represent income for households with an adequate level of consumption that maintains the pace of the economy.

The direction of the CPI

DANE reported that the consumer price index (CPI) presented a monthly variation of 1.05% in March 2023. Monthly food inflation was 0.91%, such that the annual variation of this component reached 21.8%, a minimum since May of last year. In fact, it was the first time since June 2021 that the monthly advance was below the historical average for the period 2000 to 2021 for a March, as a result of a notable slowdown in the prices of processed products in relation to perishables.

From the processed, the moderation in the monthly increases in the price of rice, beef, pork and sea meat, milk, bread and cheese stands out, in addition to the falls in the prices of chicken meat and sugar . In relation to perishables, the sharp falls between March and February in the price of tomato, cassava, onion, potatoes and carrots were offset by the acceleration in the price increases of fresh fruit, eggs and vegetables , in addition to the continuous advance in the price of bananas, blackberries and arracacha.

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