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Core pressures remain elevated

Vittorio Peretti & Carolina Monzón


November inflation came in above market expectations, with food prices remaining a key pull (1.5% mom). Consumer prices increased 0.77% from October to November (0.50% one year ago), above the Bloomberg market consensus of 0.61% and our 0.51% call. Food (+29bp contribution), transportation (+1.35% mom; +17bps) and restaurants (+12bps) were key drivers to price dynamics in the month. Nevertheless, inflationary pressures remain widespread with core prices (excluding food and energy goods) increasing 0.58% from October (0.23% in November last year). In annual terms, inflation rose to 12.53% in November from 12.24% in October, while core inflation rose 37bps to 8.61%, well above the upper bound (4%) of the central bank’s range around the 3% target. With large twin deficits, resilient domestic demand and unanchored inflation expectations, the central bank will likely opt for another large rate increase later this month (+100bps to 12%).

Inflationary pressures are widespread. Non-durable goods inflation (mainly food) rose to 21.67% yoy from 21.49% in the previous month. Meanwhile, energy prices posted some relief, falling 37bps to 18.67%. Services inflation rose 21bps to 6.87%, while durable goods inflation rose to 15.15% from 13.99% one month earlier. At the margin, we estimate that inflation accumulated in the quarter was 13.2% (annualized), in line with 3Q22, 11.3% in 2Q22 but below the 14.5% in 1Q. Meanwhile, core inflation sits at 9.7% (annualized), accelerating from 9.1% in 3Q22 and 2Q22.

Following the significant surprise in November, inflation will likely exceed our 12% yearend call. For next year we expect a slow disinflation towards 8%, driven by indexation, COP weakness and effects of the tax reform.

Vittorio Peretti

Carolina Monzón