Although interest rates continue to rise as determined by the Banco de la República at its last meeting, leaving it at 13%, it is believed that as of this quarter inflation will begin to drop from the annual rate of 13.28% registered in February .
In the accounts of the Minister of Finance, José Antonio Ocampo, if it appears that the cost of living is going to drop. In this regard, he said last week that “food inflation has already been falling for two months and one of the most positive effects it has had is that inflation for poor, low-income households has also been falling for two months.”
For example, in the first month of the year, CColombia ranked as the seventh country in the world with the highest inflation figure in the category of food and non-alcoholic beverages (26.2%), and the first among the American countries.
The minister maintained that “the economy began to slow down due to factors such as the international crisis that has been spreading, likewise, the effect of the adjustment measures and inflation that has had negative effects on economic activity associated with the high rates of interest. The month of January was positive according to the Dane figures and I believe that the beginning of the year will continue to have deceleration effects, but I am hopeful that we will make progress in reducing inflation and the fiscal deficit,” explained Minister Ocampo.
Currently, the annual inflation rate in Colombia reached 13.28%, a figure that had not been seen since March 1999, that is, for 24 years.
It will be gradual
On the other hand, in terms of goods and services, BBVA Research experts estimate a gradual reduction in total inflation, which closed 2022 at 13.1%, but they estimate that, by the end of this year, it will stand at 9%. and it will continue to lose ground until reaching 5% in 2024.
The foregoing will be driven by a sharp drop in food inflation, which will go from 27.8% in December 2022 to 7.6% in the same month of 2023.
Regarding this last phenomenon, Juana Téllez, chief economist at BBVA Research, affirmed that “what we will see will be something similar to the world trend, inflation is expected to fall gradually as supply shocks subside and demand weakens, but the persistence of core inflation and the strength of the labor markets will force central banks to have official interest rates higher than expected and not to cut them before 2024″.
As the BBVA Research expert already suggested, the Banco de la República would be close to finishing its cycle of increases after this week’s meeting.
Thus, as inflation gradually falls and there is a slower rate of growth, the reduction in interest rates will continue.
Similarly, the Banco de la República expectations survey forecasts that monthly inflation for March will be 0.99%.
Corrections
For their part, Corficolombiana analysts Julio César Romero and Laura Daniela Parra pointed out that “according to our estimates, annual inflation reached its maximum in February 2023, thanks to a more intense and anticipated correction than expected in the food prices and in the midst of a strong indexation in rents and education services (although slightly less than expected)”.
They ensure thate “henceforth, service and regulated inflation will continue to rise, reaching its maximum levels in the second quarter of this year, which would prevent a more important price correction in the first semester, driven by lower food inflation . Subsequently, it will begin a more evident decrease in the second semester, interrupted momentarily by the establishment of healthy taxes from November. Thus, we estimate that annual inflation would be located, on average, at 10.77% during the second part of the year, with a closing of 9.78%”.
They estimate that for March the result would be 0.93%, with which annual inflation would decrease to 13.21%. In contrast, core inflation (goods and services excluding food and regulated items) would continue its upward trend towards a new all-time high of 10.06%, reflecting strong inertia from the pressure on services.
The sender
On the other hand, in the report to the Congress of the Banco de la República, the directors indicated that, during the first two months of 2023, annual consumer inflation remained at levels above 13%, sustained by increasing adjustments in core inflation. , particularly services, despite a drop in the rate of adjustment in the prices of food and other goods.
They maintain that “For the rest of the year, a drop in inflation is expected, hand in hand with increasingly smaller adjustments in food prices to the extent that external cost pressures are diluted and supply shocks due to weather and climate are overcome. the road blockades of previous years, as well as the recently observed deceleration of the producer index”.
Indicate that “The decrease in inflation will contribute to the accumulated adjustment of the policy interest rate, which in 2023 should be at the level required to moderate domestic demand to levels consistent with the productive capacity of the economy and stop the increase in expectations of inflation. However, the process of reducing inflation will be gradual and its convergence to the target will extend beyond 2023. Factors such as indexation and the accumulated depreciation of the exchange rate will continue to exert upward pressure for several quarters on different segments of the CPI, such as services and regulated goods, while the transmission of monetary policy to economic activity and prices will operate with its usual lag”.
The report also specifies that “the expected decline in inflation in 2023 will be due, among other factors, to lower external cost pressures due to the progressive normalization of supply chains, to overcoming supply shocks for reasons of climate and by the road blockades of previous years, which will be reflected in lower adjustments in food prices, as was already observed in the first two months of the year and, of course, the lagged effect of monetary policy”.
The directors specify that “the process of convergence of inflation to the target will be gradual and will extend beyond 2023. This process will be facilitated if the pressures for devaluation are reversed, for which it is essential that fiscal sustainability continue to be consolidated and messages on different fronts of public policy that generate uncertainty and mistrust are avoided”.
The course of interest
Since September 2021, the Banco de la República has been increasing the monetary policy rate. From the end of 2021 Inflation increased and began to move away from the target, affected by the road blockades of May 2021 and their negative effects on the productive chains, by the withdrawal of some relief given during the pandemic, and by the strong shocks of external costs already mentioned.
The acceleration of inflation was reinforced by the accumulated depreciation of the peso and its transfer to domestic prices, and by indexing prices to higher inflation rates. With this environment, during 2022 inflation, its forecast and expectations increased and moved away from 3%, and the risk increased that a generalized indexation process would accentuate and further distance inflation from the target. Due to all of the above, during 2022 and so far in 2023, the Board continued with the monetary policy adjustment process and increased interest on several occasions: from 3% in December 2021 to 13% in March 2023, that is, that, in 14 months, the cost of money that the Issuer collects from the financial system has increased by 10%.