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We envisage BanRep’s easing cycle to continue at a gradual pace in the short-term.
2024/06/12 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Consumer prices rose 0.43% from April to May, in line with the Bloomberg market consensus and our call. The main positive contributors in the month were housing and utilities (+0.74% MoM, +23bps), food prices (+0.51% MoM, +10bps), and restaurants (+0.65% MoM, +7bps). In contrast, transport prices fell 0.05% MoM, subtracting 1bps from the monthly variation. Consumer prices excluding food rose 0.41% MoM, while inflation excluding food and energy prices rose by 0.39% MoM (core; 0.58% one year earlier). Overall, annual headline inflation remained stable at 7.16% from April, but core inflation declined from 6.86% to 6.66% (10.60% peak in April last year). Even though the decline in headline inflation expectedly paused in May, the core disinflation process advanced, signaling indexation pressures are easing.


The food price drag continued to moderate, while durable goods inflation fell. Non-durable goods inflation (mainly food) came in at 7.62% YoY, increasing by 28bps from the previous month. Meanwhile, energy inflation fell to 19.7% YoY, a drop of 217bps from April. Durable goods inflation remained in negative territory, falling from -2.95% to -4.36% in May (16.8% peak in January 2023), dragged by vehicles and motorcycles prices amid favorable COP dynamics and soft domestic demand.  Meanwhile, services fell by 3bps, but remained elevated at 8.28% (9.51% peak in September). At the margin, we estimate that inflation accumulated in the quarter was 6.3% (SA, annualized; similar to 1Q24). Core inflation moderated to 6.0% from 6.4% in 1Q24 (SA, annualized, +7.0% in 4Q23).


Our take: The pause in the annual headline disinflation path is transitory given low base effects from May last year, and should resume next month. Our preliminary estimate for June’s CPI, to be released on July 8, is between 0.1% and 0.2%, leading annual inflation to drop to around 7%. In the second half of the year, the annual appreciation of the COP should contribute to a swifter disinflation adjustment in core inflation. We see inflation falling to 5.2% by the end of this year, although with upside risks from uncertainty over rent and diesel price dynamics. We envisage BanRep’s easing cycle to continue at a gradual pace in the short-term with another 50bp cut later this month.