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Annual core inflation fell to one-digit.
2023/10/09 | Andrés Pérez M., Vittorio Peretti, Carolina Monzón & Juan Robayo

Annual core inflation fell to one-digit, while food, utilities and fuels prices pressured inflation in September. Consumer prices increased by 0.54% from August to September (0.95% in September 2022), broadly in line with the Bloomberg market consensus of 0.53% but above our 0.44% call. The main contributors in the month were food (+0.74% MoM, +14bps) and utilities (+0.40% MoM; +12bps), while transport increased 0.67% MoM, adding 9bps to the monthly variation (amid the fuel price adjustment). The rise in food prices explained most of the surprise relative to our forecast. Meanwhile, core inflation (excluding food and energy) increased by a lower 0.42% from August to September (+0.69 one year earlier). Overall, annual headline inflation fell to 10.99% (from 11.43% in August), while core inflation dropped from 10.09% to 9.80% (10.60% peak in April). Even though, inflation maintains its downward trend, the disinflation process has been slow. Additionally, medium-term inflation expectations remain well above the 3% target, pointing to only a gradual easing cycle ahead. Despite the slow inflation disinflation process, clearer signs of activity weakness and with two of the seven BanRep members having voted for 25bps in the last monetary policy meeting, there is a possibility of rate cuts unfolding during the 4Q23. 


Core inflation moderated, while services inflation rebounded. Non-durable goods inflation (mainly food) came in at 13.86% yoy, falling 77bps from the previous month.  Meanwhile, amid the phasing-out of fuel subsidies, and with upside pressures due to the El Niño phenomenon, energy prices remain elevated, but still fell 37bps to 21.82% (22.66% peak in June). Durable goods inflation fell from 12.56% to 9.87% (16.8% peak in January). Services inflation increased by 05bps in September to 9.51% (achieving a new peak). Overall, core inflation moderated 29bps to 9.80%. At the margin, we estimate that volatile items (driven by supply shocks) are leading to an uptick in headline inflation, which accumulated 8.7% in the quarter (SA, annualized), rising from 7.4% in 2Q23. Core inflation continued to trend down to 6.0% (SA, annualized), from 9.3% in 2Q23 (13.8% in 1Q23).


The disinflation process will be slow. Upside pressures to inflation persist, from indexed utility prices, fuel price increases, and potential effects from the El Niño later this year.