Itaú BBA - Lower-than-expected inflation in Colombia

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Lower-than-expected inflation in Colombia

March 7, 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.
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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.


Day Ahead: 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.


Day Ahead: 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).


Day Ahead: 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.


Day Ahead: 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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