Itaú BBA - Evening Edition – Lower-than-expected inflation in Colombia

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Evening Edition – Lower-than-expected inflation in Colombia

Fevereiro 6, 2020

The downside surprise was mainly explained by lower than anticipated housing, communication and fuel inflation.

Talk of the Day


Consumer prices gained 0.42% from December to January (0.60% one year earlier), coming in below the Bloomberg market consensus (0.56%) and our 0.53% forecast. The downside surprise was mainly explained by lower than anticipated housing, communication and fuel inflation. As a result, annual inflation inched down from 3.80% in December to 3.62%. With the disinflation process unfolding (within 2% - 4% target) and growth close to potential, the central bank is likely to remain comfortable with keeping the policy rate stable at a mildly expansionary 4.25% for the time being. The central bank’s key inflation measure (CPI excluding food and regulated prices) halted a seven month climb after edging down to 3.07% in January (3.10% in December). Overall, the average of core inflation measures came in at 3.33% in January (3.34% previously), close to the 3% target. Tradable good inflation remains low, gradually ticking up to 2.49% (2.24% previously; headline inflation: 3.62%), reflecting that the pass-through from the accumulated COP depreciation remains low. Non-tradable inflation (also excluding food and regulated prices) edged down to 3.33% (3.49% previously), while the regulated component moderated in the month, gaining 4.25% yoy (4.48% previously). At the margin, inflation over the last three months (SA, annualized) dropped to 1.9%, from 3.3% in 4Q19 (5.1% in 3Q19), amid moderating energy and service inflation. We expect headline inflation to end the year close to the target at 3.3%. Food price normalization, after last year’s supply shock, along with broadly anchored inflation expectations, would limit inflationary pressures ahead. ** Full story here.


According to Anfavea, auto production reached 193.5k in January, above our forecast (180k). In seasonally adjusted terms (our estimates), production increased 7.2% (-3.9% yoy). The 3-month moving average also dropped 3.9%. It is worth noting that in November and December vehicles production dropped 10.9% and 6.4%, respectively (our seasonal adjustment). From a demand standpoint, both exports and domestic sales receded  (-0.4% and -5.2% mom/sa, respectively). The production breakdown shows advances in both light vehicles segment (+8.0% mom/sa) and trucks and buses (+7.5% mom/sa). Our preliminary forecast for January’s industrial production advanced to 0.0% mom/sa (-2.3% yoy) from -0.5% mom/sa (-3.1% yoy).

Yesterday, the Copom delivered the widely expected 25-bp rate cut, taking the Selic rate to 4.25% pa, and stated, clearly, that given the lagged effects of the easing cycle, it would be warranted to interrupt the process. We thus expect the authorities to leave the base rate unchanged at 4.25% until year-end. Coming decisions will be, as always, data dependent. It should be noted that, in their wording, the authorities’ opted for “interrupt” rather than “end”, which signals they may eventually, under appropriate circumstances, revisit the issue. The text suggests that easing might only resume if the inflation forecasts for 2021 begin to deviate from the 3.75% target. We´ll learn more about the Copom´s views with the release of the meeting minutes on Tuesday, February 11, at 08:00 AM. ** Full story here.

Tomorrow’s Agenda: January’s IPCA inflation will be released at 9:00 AM (SP time). We forecast a 0.33% monthly increase, leading the 12-month reading to 4.32% (from 4.31% in December). We expect all core inflation measures to remain on a benign path. For non-core inflation, food items, especially beef prices, will likely pose some relief in comparison to the December reading, amidst the protein price shock. Importantly, this is the first inflation reading under the new weight structure from the updated version of the household budget survey (“Pesquisa de Orçamento Familiar” – POF).


According to National Institute of Statistics (INE), nominal wages grew 4.5% YoY in December (4,2% in November; 4.4% in 3Q19), resulting in a real wage expansion of 1.4% (1.3% previously; 2.1% in 3Q19). In the final quarter of 2019, nominal wages grew 4.4%, below the 4.9% in 3Q19, but slightly above the 4,3% growth in November. The real wage bill growth (considering only salaried employment), diluted to 2.5% in the quarter (3.5% previously 4.8% in 3Q19), due to a slacking in employment growth, and in line with the recent growth on self-employment. In spite of the solid print of December, we see room for a weakening labor market ahead, as the impact of protest fully pass-through the unemployment.

Tomorrow’s Agenda: The institute of statistics (INE) releases inflation for the first month of 2020 at 8:00 AM (SP time). Inflation ended 2019 at the central bank’s 3% target, up from 2.7% in November and 2.6% in 2018, but below the central bank’s expectation of 3.4% (updated in the 4Q19 Inflation Report). For January, we expect consumer prices to gain 0.4% from December (0.1% last year), with food price dynamics raising an upside risk. As a result, annual inflation would lift 0.3pp to 3.3%.


Tomorrow’s Agenda: INEGI (the statistics institute) will publish January’s CPI inflation at 9:00 AM (SP time), which we expect to increase 0.50% mom, with core inflation at 0.32% mom. The figure is expected to reflect pressure from an increase (update) in the excise tax on sugary drinks and tobacco and some upside pressure from non-core agro prices. Assuming our forecast is correct, headline and core CPI would grow 3.26% yoy in January (from 2.83% in December) and 3.72% (from 3.59%), respectively, also reflecting an unfavorable base effect due to lower monthly inflation at the beginning of 2019, associated to lower VAT in the northern frontier (that went from 16% to 8%).

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