Itaú BBA - COLOMBIA – Stable inflation in August

Macro Brazil

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COLOMBIA – Stable inflation in August

septiembre 6, 2018

Stable inflation amid a gradual activity recovery, will justify stable rates for the time being.

In August, consumer prices gained 0.12% from July (0.14% one year before), coming in slightly above our 0.08% forecast and in line with Bloomberg’s market consensus. Annual inflation inched down from 3.12% in July to 3.10%, and has been broadly stable since March. With inflation under control and activity showing a gradual recovery, the central bank is likely to keep the policy rate stable at 4.25% for the time being. 

The main contributor to the monthly price gain was the 0.35% rise in housing expenses (explaining 0.11pp of the headline increase; +0.44% one year before). On the other hand, low food price gains (+0.03% vs. -0.08% one year ago) kept inflationary contained, along with entertainment and communication prices. Excluding food prices, the monthly gain was +0.14% (-0.23% one year ago), similar to the headline variation. Despite the recent weakening of the Colombia peso, tradable goods prices (excluding food and regulated items) gained a mild 0.03% in the month (-0.08% one year ago), while non-tradable goods (also excluding food and regulated prices) also grew a mere 0.09% (0.24% in August 2017). Thus, regulated prices led the inflation print in the month, as they expanded 0.45% from the previous month (0.68% in one year earlier).

In annual terms, inflation of 3.1% is close to the central bank’s 3% target. Regulated prices (particularly electricity and water services) pulled up inflation (6.36%; 6.60% in July), as did non-tradable goods (+4.16%, below the 4.30% in July), although both categories showed moderation. Tradable goods prices pulled inflation down in the month, but is becoming less of a drag (1.67% from 1.57% in the previous month). At the margin, we estimate headline inflation accumulated over the last three months (SA) continues to moderate, pulled down by all categories. The three-month accumulated inflation was 3.5% (seasonally adjusted and annualized) broadly stable from 2Q18, with moderating food and tradable inflation being offset by the non-tradable component gaining pace. Meanwhile, our diffusion index shows broadly stable and widespread downward pressures. 

We continue to expect inflation to end the year at 3.2% (4.09% in 2017), near the 3% target, as the still-wide output gap and controlled inflation expectations keep inflationary pressures in check.

Miguel Ricaurte 
Carolina Monzón

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