Itaú BBA - COLOMBIA – Inflation in line with expectations in February

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COLOMBIA – Inflation in line with expectations in February

Março 6, 2020

Robust growth, along with the weakening of the Colombian peso, pose a risk to our disinflation expectation

Consumer prices rose 0.67% from January (0.57% last year), as expected, leading to the annual print ticking up 10bps to 3.72%, further away from the central bank’s 3% target. Food prices, housing expenses (boosted by electricity) and education led the gain in the month, jointly explaining over 3/4 of the headline variation. We expect inflation to decelerate from the current above-the-target level. However, a wide current account deficit and robust growth, along with the weakening of the Colombian peso, pose a risk to our expectation.

Core inflation fell compared to last year. The seasonal increase in education fees (4.78% MoM; 21bp contribution) led the consumer price gains in February. Meanwhile, the 0.93% MoM variation of food prices (14bp contribution) could be linked to the truck drivers’ strike in Bogota that affected food supply. Nevertheless, core inflation (excluding food and energy prices) came in at 0.60% from January, below the 0.68% variation one year ago.

Tradable inflationary pressures are yet to materialize. Durable goods remain a key inflation drag (stable at 1.87% yoy), indicating low pass-through pressures to-date following the COP depreciation, although energy prices ticked up 0.8pp to 3.9%. With global oil prices plummeting, energy inflation will likely moderate. The truck driver strike meant that the pull from food and non-alcoholic prices increased to 5.87%, from 5.13% in January. Overall, inflation excluding food and energy prices edged down to 3.29% (3.37% in the previous month), while service inflation ticked down 9-bps to 3.52% reflecting well-behaved underlying inflation. At the margin, inflation over the last three months (SA, annualized) was only 1.6%, the lowest level since 4Q16 (3.3% in 4Q19), dragged by transportation and restaurants divisions.

We expect inflation to end the year at 3.3% (3.8% in 2019). Close to potential growth, wide current account deficit and still above-target inflation mean policy rate will likely stay stable this year. However, recent developments in the global economy (including the Fed’s 50-bp rate cut response) increase the odds of rate cuts down the road.
 

Miguel Ricaurte
Carolina Monzón



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