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Disinflation process supports a larger rate cut in March.
2024/03/08 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Consumer prices increased 1.09% from January to February (1.66% in February 2023), broadly in line with our 1.08% call, while marginally above the Bloomberg market consensus of 1.01%. The main contributors in the month were education (+8.74% MoM; +33bps), housing and utilities (+1.07% MoM, +33bps), restaurants and hotels (+1.13% MoM, +12bps) and transport (+0.86%; +12bps), while food prices still did not reflect significant El Niño related pressures (+0.54%; +10bps). Consumer prices excluding food rose 1.22% MoM, while inflation excluding food and energy (core) increased 1.26% from January to February (1.66% one year earlier). Overall, annual headline inflation fell to 7.74% (from 8.35% in January), while core inflation declined from 8.01% to 7.59% (10.60% peak in April last year). Although headline and core inflation remain well above the target, the disinflation process is advancing, inflation expectations are falling and activity is underwhelming, opening the door for an acceleration of the easing cycle at the next monetary policy meeting on March 22. We expect the Board to cut rates by 50bps to 12.25%. 


Energy inflation moderated, while service prices remained sticky. Non-durable goods inflation (mainly food) came in at 8.06% YoY, falling 117bps from the previous month. Meanwhile, after the peak in the last month, energy inflation fell to 25.94% YoY, a drop of 115bps from January. Durable goods inflation fell from 1.16% in January to negative ground at -0.42% (16.8% peak in January 2023), likely dragged by the consolidated effects of COP appreciation. Core inflation decreased by 42bps to 7.59%, while services inflation fell more gradually, down 13bps to 8.55% (9.51% peak in September). At the margin, we estimate that inflation accumulated in the quarter was 4.6% (SA, annualized), decelerating from 7.2% in 4Q23. Meanwhile, core inflation reached 6.0% (SA, annualized, +7.0% in 4Q23).  


We expect yearend inflation of 4.8%. Despite the El Niño phenomenon and diesel price risks, weakening domestic demand, along with still favorable FX dynamics and a high base comparison from last year would consolidate the disinflation process. Our preliminary estimate for March’s CPI, to be released on April 7, is between 0.5% and 0.6%, leading annual inflation to fall again to 7.3%.