Itaú BBA - COLOMBIA – Inflation eases in April

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COLOMBIA – Inflation eases in April

Maio 6, 2020

Core inflation is slowing fast at the margin

Core consumer prices fell from March to April as domestic demand weakens amid a nationwide lockdown. As a result, total consumer prices increased a mild 0.16% from March to April (0.50% last year), below our 0.22% forecast and the 0.25% market consensus, with the food division still driving inflation. Overall, it was the lowest monthly gain for the month of April since 2012, despite the Easter period that normally boosts prices. The significant shock to the Colombian economy from the coronavirus and lower oil prices would result in a significant widening of the output gap that would lead to a swift disinflation process ahead. With inflation under control and activity slumping, further monetary stimulus is likely in coming months.

Falling communications and transportation inflation dragged inflation down in the month. The 2.04% MoM increase of food and non-alcoholic beverages prices (32bp contribution) and the 0.15% rise in the home expenses (5bp contribution) lifted consumer prices. Meanwhile, communication prices fell 2.97% from March (subtracting 13bps), dragged by falling mobile and internet services on the back of a VAT reduction adopted as a relief measure for the current economic emergency. Additionally, transportation dropped 0.89% MoM (subtracting 11bps) as air tickets and fuel prices declined. Core inflation (excluding food and energy prices) declined 0.15% from March (+0.36% last year), while the core measure just excluding food prices fell 0.19% (+0.39% last year).

Annual inflation is ticking down, while core inflation is slowing fast at the margin. Annual inflation moderated to 3.51% yoy, from 3.85% in March, dragged down by low durable goods inflation (1.58% vs. 1.83% in March), and slowing energy inflation (1.15% yoy vs. 2.62% in March). The latter is at its lowest level since June 2015 as the government moved quickly to incorporate falling global oil prices into the domestic market as part of its economic relief measures. Non-durable good inflation (capturing food prices) was broadly stable, with a 5.02% gain (5.04% in March). Inflation excluding food and energy prices fell to 2.79%, from 3.32% previously. At the margin, we estimate that inflation accumulated in the quarter was 2.7% annualized (stable from 1Q20 but down from 3.4% in 4Q19). However, core prices (excluding food and energy) slowed to 0.6% from 2.0% in 1Q20 and 3.6% in 4Q19.

We expect inflation to fall further ahead and likely end the year below the 3% target (3.8% last year). Food price normalization after recent supply shocks, falling inflation expectations, and a widening negative output gap would reduce inflationary pressures.

Miguel Ricaurte
Carolina Monzón

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