After a slight uptick in June, the inflation rate in Colombia dropped to a four-year low of 3.12% in July, according to the National Administrative Department of Statistics (DANE).
Compared to June, the consumer price index fell by 0.13% — significantly below the consensus forecast. Bancolombia (NYSE: CIB), the Medellín-based largest bank in Colombia, had expected a rise of 0.13%.
“A record similar to this for July hadn’t been seen since 2003,” wrote Bancolombia in its analysis. “Thus, the monthly variation of consumer prices decreased 28 basis points compared to June and 8 basis points contrasted with July 2017.”
Though the year-over-year rate is the lowest since mid-2014, it remains in line with the figures seen in three consecutive months early this year (3.14% in March, 3.13% in April, 3.16% in May) before a minor is rise in June (3.20%).
The year-to-date inflation rate is down even more significantly, sitting at 2.34% from the first of the year through July.
The nation’s central bank, Banco de la República, has set a target range for inflation of between 2%-4%.
Though the rate has remained relatively steady, near the target midpoint of 3% for the past five months, this month’s fall was largely due to food prices, which dropped by a sizable 0.56% from June to July.
Though inflation remains low, Bancolombia is forecasting that this number will continue to creep up throughout the second half of the year to finish 2018 at 3.4%.
Therefore, it does not expect the central bank to increase the nation’s benchmark interest rate in 2018.
“We reiterate our stability forecast for the remainder of the year,” wrote the bank in a note to investors. “We share the view of the central bank that the current interest rate is consistent with the recovery phase of productive activity, the convergence of inflation towards the medium-term target, and an external environment that, although it has favored the reactivation of the economy, will be a source of significant uncertainty for emerging economies going forward. In line with this outlook, we believe the conditions for monetary policy normalization to begin will only be available in the first quarter of 2019.”
The central bank has likely concluded the interest rate cutting cycle that took the benchmark rate in Colombia from 7.75% in late 2016 to the current 4.25%. In its most recent meeting, the board voted unanimously to maintain the current rate.
Outgoing Finance Minister Mauricio Cárdenas was among those who advocated for one final rate cut as a “last effort” to spur a little more economic growth back in April when the figure stood at 4.5%.
The central bank projects 2.7% GDP growth in Colombia this year, but it has exuded more confidence of late that this number can be hit, whereas previously it saw lower growth as a larger risk.
“The co-directors [of the central bank] are more optimistic about this figure, which makes additional cuts in the repo rate less likely since the current position of the rate, which is slightly expansive, would continue contributing in the remainder of the year to closing the output gap,” wrote Bancolombia.