What Jumps Out: Positive Inflation Data and Tricky Fuel Subsidy Conversations

There is one economic theme that is set to run and run and run in 2024.

The government spent 2023 successfully normalizing gasoline prices, in turn saving billions in subsidies. The next battle is diesel prices — and a collision course with the transport federation, Fedetranscarga, which is claiming that if there is anything more than a modest increase to 10,300 Colombian pesos, the prices of eggs (an arbitrary choice) will rise dramatically to 1,300 pesos — somewhere between 20%-30% more expensive than today.

This claim is quasi-blackmail — and it was immediately debunked by Fenavi (the nation’s poultry federation), which pointed out on Caracol Radio that transport represents only 5% of their costs.

It is important to note, however, that the transport workers are going to represent a problem, as the government, quite correctly, tries to move fuel prices to market levels. If not, there will be a deficit of some 10.5 trillion pesos ($2.6 billion USD) by the end of 2024.

In macro news, January inflation data released last Wednesday was in line with expectations for both the month-over-month (0.92%) and 12-month figures (8.35%). A year ago at this time, the number was 13.25%.

The main contribution last month came from transport (+1.99%) due to gasoline prices continuing to rise +40% on an annualized basis. Within the housing (+0.84%) sector, there was positive news on electric (-2.15%), which fell due to government measures. Nonetheless, on the coast, El Niño is driving prices up 30+% on an annualized basis.

Sadly, Banco de la República have the month off in terms of a rate decision when in reality they should have been cutting rates once again by at least 25 basis points.

Fortunately, however, El Niño is taking a couple of weeks off as well. This will likely be short-lived though, as IDEAM Colombia has made it clear that once the current (modest) rains subside, things are going to get dry and hot once again.

Some news on open finance after Superfinanciera, following its usual lengthy potification, approved a measure geared towards making it easier for clients’ data to be shared when they wish to open a new product at a new entity.

Finally, the Constitutional Court has approved the use of custodial sentences for tax evasion. This has been looked at for two decades, but the Petro tax reform of 2022 got it approved.

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