Itaú BBA - COLOMBIA – Another lower-than-expected CPI

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COLOMBIA – Another lower-than-expected CPI

November 6, 2017

We now see yearend inflation at 3.9% (4.2% previously).

Inflation once again surprised to the downside in October. Prices gained 0.02% in the month, below both the Bloomberg market consensus and our forecast of +0.10%. Due to unfavorable base effects, the resulting 12-month inflation picked up to 4.05% (3.97% in September), the first print above the central bank’s 4.0% upper bound since May this year. In spite of non-tradable inflation – which is the component of consumer prices more linked to domestic factors – remaining sticky, the lower-than-expected headline reading risks further rate cuts in the short-term.

Annual food price inflation continued to pick up to 2.51% from 2.22% in the previous month (and the minimum of 0.2% in July) as the base of comparison is low. Inflation excluding food prices was broadly flat at 4.70% (4.71%, previously), still above the upper bound of the 3-4% target range. Regulated goods (5.61%), alongside non-tradable goods excluding food and regulated prices, are also well above the target range. Meanwhile, tradable goods prices (also excluding food and regulated prices) came in below the headline figure at 3.38% (3.41% in September), a result of the more favorable evolution of the Colombian peso. Our diffusion index continues to inch down, with a moderation in the non-tradable component.

We now expect yearend inflation of 3.9% (4.2% previously). Our revision partly responds to downside surprises to inflation in the last two months, which have totaled 0.22pp.

The recent improvement in the inflation outlook has led the central bank to recommence the easing cycle earlier than expected. Last month, the central bank surprised the market by cutting the policy rate by 25bps to 5.0%, while the market expected the bank to remain on hold until early 2018. As the inflation outlook continues to improve, we cannot rule out additional cuts before the end of this year.


Miguel Ricaurte
Vittorio Peretti

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