What Jumps Out: Inflation Concerns

Fully as expected, this has been a quiet week in general for Colombia as we head into the long weekend, the first of 17 in 2023. If there is one holiday that perhaps should be removed from the calendar it should be this one – it effectively creates a 50-week year in Colombia.

Most of the headlines were reserved for the December Inflation data which rose 1.26% MoM and 13.12% YoY – both higher than expected and causing media distress. When we look back on 2022 the standout issue is food which rose over 27% (2.66% alone in December) – Colombia is not unique in this owing to global events but it has certainly felt the impact as hard as most. This helped contribute to a core inflation of 9.99% for 2022 – a number that also moved up from 9.48% in November. It is worth noting that both the monthly and annual reading was above all 19 analysts’ consensus estimates according to Bloomberg.

Now what? For the authorities this is a key moment they are going to have to ride out. This isn’t on them, but it is on them to manage the situation. Much has been made of Finance Minister Ocampo, who has done outstanding work, and his calls for the Central Bank to not raise rates due to this being supply side inflation – but rates will have to be increased to at least 12.5% when the committee meet again at the end of the month.

That was the terminal rate when Bloomberg & Fedesarrollo last conducted their surveys but can that line hold? The 16% minimum wage increase is about to start being paid, with the government furiously—and correctly—trying to prevent a knock-on effect with 200 products and services in the market. Now, 13.12% will become the benchmark for a mass of other products – somehow the authorities must break the cycle. The reality is that CPI may yet go higher, obviously not to those seen on the streets of Caracas or Buenos Aires, but only Chile (13.3%) amongst the mainstream Latam economies has higher inflation.

Away from inflation, although it is hard to ignore there were a couple of other data points…

PMI Manufacturing from Davivienda, surprisingly perhaps, in December rose to 51.1 from 47.3 the previous month. The number has bobbled about, and this latest reading demonstrates there is still some stubbornness in the system.

Coffee Production for 2022 totaled 11.1 million sacks – down 12% YoY and here we see the clear impact of La Niña. One never wants to blame “the little girl,” but the rains have been close to unprecedented, and coffee is just one area of agriculture that has been impacted. The knock-on effect is seen from inflation to exports.

Another commodity which has disappointed in the first week of 2023 is oil. It has slipped due to global factors and that presses on the Peso which yesterday (Thursday) fell below 5000 once again before recovering. Obviously, the dollar is enjoying a global bump and this has an impact but also the dearth of traders in the offices of Colombia also impacts.

Please find below LinkedIn video:

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_what-jumps-out-inflation-concerns-as-expected-activity-7017051855004291072-nmmK?utm_source=share&utm_medium=member_desktop

That is about it, the next update will be from Medellín, in the meantime have a wonderful weekend wherever you are.

Roops