Itaú BBA - COLOMBIA – Food drives inflation in March

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COLOMBIA – Food drives inflation in March

Abril 6, 2020

Inflation remains near the upper bound of the central bank’s tolerance range (2%-4%), but core measures are closer to the 3% target.

Inflation accelerated in March, driven by food prices, while core inflation indicators remained well-behaved. Consumer prices gained 0.57% from February (0.43% one year before), coming in above the median of Bloomberg expectations (0.48%), while in line with our 0.58% forecast. The Food and Housing expense divisions drove prices in the month, while entertainment prices were the key drag, likely due to lockdown measures adopted by the government to contain the coronavirus outbreak. Inflationary pressures ahead would likely be contained on the back of lower fuel price pressures and diminishing demand pressures as the economy contracts. Controlled inflation gives the central bank room to implement additional monetary stimulus ahead.

The pickup in the food prices was the sharpest since early 2016 and likely explained by bulk purchasing in anticipation of the national quarantine. The 2.21% monthly rise in food and non-alcoholic beverages prices explained 0.34pp of the headline CPI gain, while housing expenses rose 0.55% (0.18pp contribution). On the other hand, entertainment prices fell 0.37% from February and transportation declined 0.07% mom, with the latter mainly explained by the government’s fast tracking the pass-through of lower global oil prices to the fuel pumps. The core inflation measure that excludes food prices posted a 0.27% monthly variation, below the 0.34% last year, while after excluding both food and energy prices, the inflation variation was broadly stable from last year.

Annual inflation remains near the upper bound of the central bank’s tolerance range (2%-4%), but core measures are closer to the 3% target.  Inflation accelerated to 3.86% (3.72% in February), the highest rate since October last year. Non-durable goods, lifted by food prices, accelerated to 5.04% from 4.70% in February. Meanwhile, energy inflation diminished rapidly from 3.90% in February to 2.62%. As a result, core inflation (excluding food and energy prices) remaining broadly stable at 3.32%. Within this core component, durable goods increased 1.83% (1.86% previously), still reflecting restricted pass-through from past COP depreciation. Despite the headline uptick in the month, inflationary pressures are not widespread. We estimate that at the margin inflation accumulated (and annualized) in 1Q20 slowed to 2.6% from 3.4% in 4Q19.

Although core disinflationary pressures are expected to intensify going forward, headline inflation would remain near the upper bound of the central bank’s tolerance range this year as food price pressures remains elevated.

Miguel Ricaurte
Carolina Monzón

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