Itaú BBA - Evening Edition – Lower-than-expected inflation in Colombia

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Evening Edition – Lower-than-expected inflation in Colombia

March 6, 2019

With the result, inflation reached the central bank’s 3% target, further enhancing the case for stable rates for the time being

Talk of the Day


Annual inflation rate came in at 3.01% in February, slowing from 3.15% in the previous month and well below market expectations, at 3.17%. Consumer prices gained 0.57% from January (0.71% one year before), compared to our 0.72% forecast and the 0.73% market consensus. The surprise was mainly explained by lower than anticipated food, housing and health inflation. Overall, inflation is under control as effects from El Niño, pass-through from previous Colombian peso depreciation and a high minimum salary adjustment have not resulted in meaningful inflationary pressures.

With the result, inflation reached the central bank’s 3% target, further enhancing the case for stable rates for the time being. Following two consecutive months of downside surprises, inflation is likely to end the year closer to the 3% target than our 3.4% forecast. The still widening negative output gap and controlled inflation expectations would keep inflation low. ** Full story here.


Mining led to a weak activity start in 2019, but there are positives from robust services. Activity grew 2.4% yoy in January, below the 2.6% market consensus, while in line with our revised 2.4% call (following weaker retail data released on Monday). Mining contracted 4.3% (+0.5% previously), but was offset by a 3.1% rise in non-mining activity (particularly services; 2.8% previously). The positive evolvement of non-mining activity bodes well for the central bank’s view that the output gap is near closed. While further rate hikes can be justified in this context, uncertainty regarding inflation dynamics and still elevated external risks support a more cautious central bank. Hence, we see a low likelihood of further rate hikes during the first semester.

Activity in the 1H19 is set to underwhelm with mining activity hampered by a high base of comparison. Nevertheless, the recovery of copper prices will likely lead to still vigorous investment throughout the year, while low inflation and an expansionary monetary policy foster a favorable environment for consumption. We see GDP growth of 3.2% this year (4.0% in 2018). ** Full story here.

Tomorrow’s Agenda: At 8:30 AM, the central bank will publish the trade balance for the month of February. We expect a trade surplus of USD 650 million (USD 1.3 billion one year earlier) in February. Nominal wage growth for January will also be released, at 9:00 AM.


The BCB released its weekly survey with market participants (Focus). According to the survey, the IPCA inflation expectations for 2019, 2020 and 2021 remained stable at 3.85%, 4.00% and 3.75%, respectively.

The median of GDP growth expectations for 2019 decreased 18 bps, to 2.30%, following the timid 4Q18’s GDP growth figures that came out last Thursday. For 2020, expectations increased 5 bps, to 2.70%, and did not change for 2021, remaining at 2.50%. 

The year-end Selic rate expectations also remained flat at 6.50% for 2019 and at 8.0% for 2020 and 2021.The median of the forecasts for the exchange rate did not change for the three years horizon (2019-2021): at BRL 3.70/USD for 2019; at BRL 3.75/USD for 2020; at BRL 3.80/USD for 2021.


Tomorrow’s Agenda: At 9:00 PM, the Central Bank of Peru (BCRP) will announce its March decision on the reference rate, which we expect to remain on hold.


Tomorrow’s Agenda: At 11:00 AM, INEGI (the statistics institute) will publish CPI inflation corresponding to the full-month of February, which we expect to come in at 0.04% mom. Assuming our forecast is correct, headline inflation would be 4.01% yoy (from 4.37% in January).


Tomorrow’s Agenda: The car-makers association (ADEFA) will release February data on production, exports and domestic sales to car dealers. We expect some recovery in car production in 2019.

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