Colombia Inflation Rate Falls to 6.48% in October

The Colombia inflation rate rose to a 16-year high this summer but is now continuing on a trajectory toward a more reasonable level.

Colombia’s inflation rate fell to 6.48% in October — the lowest it has been since November 2015 and a huge drop from the 8.97% high seen in July. According to the National Administrative Department of Statistics (DANE), the consumer price index dropped by 0.06% during the month, compared to September, with food prices falling 0.53% and making up the bulk of the change.

In 2016, measuring from January through October, the consumer price index has risen 5.19%. Despite the rampant inflation occurring in Colombia this year, that figure is actually lower than the 5.49% increase over the same period in 2015.

“The good results of the last three months reinforce the probability of inflation closing the year below 6%, in line with our base scenario,” said Bancolombia in a note to investors. It added that, “our central forecast implies that November and December will follow an inflationary behavior very similar to historical records.”

Inflation had been spiking in the Andean nation all year. Food prices were the main culprit following a severe El Niño weather cycle in the early months that hurt crop yields. A 45-day trucker strike also crippled sections of Colombia’s transportation network this summer, exasperating the elevated food prices, raising the cost of other goods, and pushing inflation to a 16-year high of more than twice the top end of the central bank’s target range of between 2% to 4%.

In terms of specific products, DANE stated that potatoes, beef, onions, rice, beans, bananas, and other fresh fruits saw the biggest price drop over the past month. “The normalization in the supply of these products produced the third consecutive month with falling prices,” said Bancolombia. “As a result, this group, which accounts for 28.2% of the total basket, reached the lowest annualized reading in the last 12 months.”

The central bank — Banco de la República — recently projected inflation to finish the year at 6.1%. If the trend continues, it believes that inflation may get back down to 4% by the end of 2017. “The effects of strong temporary supply shocks — El Niño and the nominal depreciation — which diverted inflation target, are beginning to dilute to a higher than expected rate,” said José Darío Uribe last week.

Given the ongoing drop in inflation, Medellín-based Bancolombia reiterated that it still sees a monetary policy change coming in 2017. After 11 straight months of increasing the interest rates to combat inflation — an overall jump 325 basis points to 7.75% — the central bank has opted not to intervene during its last two monthly meetings.

So now, with the consumer price index seemingly back under control, the nation’s largest bank sees a reversal coming soon. “The inflation report … reaffirms our expectation that the change in the monetary policy cycle is near,” said Bancolombia. “It is worth remembering that the most important requirement for the central bank to adopt an accommodative stance is that the trend of lower inflation that began in August is consolidated, and that expectations of medium and long-term prices continue to correct.” It added that, “the first cut in the repo rate would materialize before the end of this year.”