Itaú BBA - COLOMBIA – Food drags inflation down in July

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COLOMBIA – Food drags inflation down in July

August 6, 2018

Despite the lower than expected inflation in July, core inflation remains high

Consumer price inflation was pulled down by food prices, while core inflation remains high. Inflation came in at -0.13% from June (-0.05% one year before), below the Bloomberg market consensus of +0.12% and our +0.05% forecast. On annual basis, inflation is close to the central bank’s 3% target at 3.12% (3.20% in June). Despite the lower than expected inflation in July, core inflation remains high and activity is recovering so the central bank is unlikely to deviate from keeping the policy rate unchanged at 4.25% for the time being.

The largest July food price decline since 2004, led the monthly consumer price fall. Food prices dropped 0.56% from June (-0.06% one year ago). Excluding food prices, the monthly gain was +0.05% (-0.05% one year ago), while non-tradable goods (excluding food and regulated items) gain was 0.11% (0.07% in July 2017). Tradable goods (excluding food and regulated prices) fell 0.21% from July, from the (+0.05% one year ago).

Annual inflation decelerated from 3.20% in June to 3.12%, reaching the lowest level since September 2014. The primary drag in July came from tradable goods inflation (excluding food and regulated items) as it moderated to 1.53% from 1.83% in the previous month and food prices (1.23% from 1.74% in June). Nevertheless, the core measure of inflation excluding food prices came in at 3.91%, up from 3.81%, and near the upper bound of the range around the central bank’s 3% target. Leading inflation were regulated prices (6.60% vs. 5.8% previously) and non-tradable (excluding food and regulated items) goods inflation (4.31% vs. 4.27% in June). Overall, our diffusion index indicates that price pressures have become less widespread and at the margin we estimate headline inflation accumulated over the last three months (SA) continues to moderate, to 3.5% (seasonally adjusted and annualized) versus 3.9% in 2Q18.

We expect inflation to remain close the 3% target for the reminder of the year. With inflation under control, an activity recovery underway and global risks simmering, the central bank is likely to keep the policy rate stable at 4.25% for the remainder of the year. 

Miguel Ricaurte
Carolina Monzón

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