COLOMBIA – September inflation broadly consistent with market expectations

The expected services recovery and ongoing supply constraints point to persistent inflationary pressures

Vittorio Peretti & Carolina Monzón


Consumer prices increased 0.38% from August to September, 6bps above the increase one year ago, broadly in line with market expectations. The monthly variation fell in-between the Bloomberg median analyst expectation of 0.35% and our 0.44% call. The main contributors to the monthly gain were the 0.76% growth in food and non-alcoholic beverages (contributing 13bps), housing maintenance prices increasing 0.40% (+13bps), and the 0.59% rise in transportation (+8bps) as global fuel prices remain high. Partially countering price gains was the education division, falling 2.3% MoM, subtracting 10bps from the headline figure as tuition fees for public universities and technical colleges fell, supported by new government social programs. The fall in education prices explained the bulk of the negative surprise for our call. Consumer prices excluding food and energy increased a milder 0.26% from August (0.33% in September last year). In the absence of another significant upside surprise, the majority of the Central Bank Board may opt to continue with a gradual 25bp rate hike at the next policy meeting (rather than accelerate the pace).

On an annual basis, inflation increased to 4.51% from 4.44% in August, reaching the highest rate since April 2017, while core inflation remains below the 3% target. Non-durable goods inflation continued to rise, moving from 8.67% to 8.98%, mainly boosted by the food component. Meanwhile, despite moderating to 8.03% from 8.32% in August, energy prices remained a key driver of inflation in September. Additionally, durable goods inflation accelerated to 4.36% from 3.92% in August, reflecting pass-through from COP depreciation and international supply constraints. Inflation excluding food and energy prices moderated to 2.60% (2.67% in August), while service inflation slowed down to 2.21% from 2.30% previously, suggesting that inflationary pressures for the time being remain supply driven. At the margin, we estimate that inflation accumulated in the third quarter was 6.5% (annualized; broadly stable from 2Q; 2.9% in 1Q21). Core inflation accelerated to 5.0%, from +3.0% in 2Q21 (1.5% in 1Q21).

We expect inflation at 5.2% this year, from 1.6% in 2020.> The unwinding of COVID-19 subsidy measures, a weaker Colombian peso, the expected recovery of the service sector and ongoing global supply constraints point to persistent inflationary pressure in the short term.

Vittorio Peretti 
Carolina Monzón