Itaú BBA - COLOMBIA – Inflation ticks up in May, but still under control

Macro Latam

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COLOMBIA – Inflation ticks up in May, but still under control

junio 6, 2019

Manageable inflation and a widening output gap opens the door for the central bank to consider additional monetary easing

Consumer prices picked up to 3.31% in May (3.25% in April), driven by the volatile food component. The monthly price gain of 0.31% came broadly in line with market expectations (Itaú: 0.34%), partly explained by rising tomato prices, the adjustment to rentals (due to indexation effects), as well as tariff increases to water utility and waste management. Meanwhile, core inflation (ex-food and energy) remained contained, at the 3% target. Manageable inflation, amid low exchange rate pass-through, and a widening output gap mean interest rate hikes are unlikely, while opening the door for the central bank to consider additional monetary easing given the more complex external scenario.

Inflation excluding food and energy prices remains broadly stable at the central bank’s 3% target (2.95% in April). Partly behind the headline inflation uptick (+6bps to 3.31%) was food and non-alcoholic beverage inflation rising 60bps to 4.04%, offsetting the energy inflation moderation (from 7.02% to 6.06%). Meanwhile, durable goods inflation, which include an important tradable component, remains the key drag to inflation (-0.08% yoy vs. -0.17% in April). Non-durable goods inflation accelerated to 4.08%, from 3.89%, while service inflation was stable at 3.43%.

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We believe the rising negative output gap along with controlled inflation expectations would likely keep pressures contained and result in inflation of 3.2% this year (3.18% in 2018). However, we note that some acceleration of inflation at the margin, alongside the depreciation of the COP, constitute upside risks to our forecast.

 

Miguel Ricaurte
Carolina Monzón



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