What Jumps Out: How Will the Latest Inflation Report Influence the Central Bank’s Rate Decision?

A lot of students are off from class this week and that may affect the volume of news flow. However, to start the week, there are a couple of issues to address.

Despite the anticipation of last week, there was very little discussion in the weekend press regarding September inflation from the the National Administrative Department of Statistics (DANE). The price increase readings of 0.54% (month-over-month) and 10.99% (year-over-year) are moving lower, but the question is how much room that will give Banco de la República in three weeks when it makes its interest rate decision. This will be the penultimate meeting of 2023 (because November is a non-decision gathering) so action has to be taken.

Fedesarrollo’s most recent survey suggested a 12.50% year-end rate, and that means cuts of 0.75% over two meetings.

My suggestion is that there will be cuts of 25 basis points in October followed by 50 basis points in December to close out 2023 at Fedesarrollo’s estimate.

The energy sector burnt up the column inches in the press this weekend after 14 ex-ministers sent a letter to the government expressing their concern over the stress the sector is under both financially and operationally, with El Niño bringing a lot of concerns into focus. The goal is avoid power cuts but also to establish the rules of the game ahead of time in terms of pricing.

The minister of mining has suggested that the country needs a new tariff structure. That will no doubt be debated, but IMHO, a country that has so much hydroelectric power, gas, and enormous coal reserves, as well as massive solar and wind power potential, is still producing expensive energy to end users.

The Colombian peso, as well as the equity markets, over the past 10 days have been pushed around by externals events, namely the US economy. That will continue this week with events in Israel maybe disrupting the markets. Equities could well have a nervous start to the week while, as we’ve seen historically, conflict in the Middle East invariably pushes oil prices upwards (and we have already seen that occur). And that will help the peso.

This week from the DANE will be a quiet week. We will see August results from the Economic Activity Index as well as imports. You will remember that exports dropped 10.1% in the last reading, a more modest decrease than we have seen recently. All things being equal that will give is a smaller trade deficit for the month.

Never miss Rupert’s latest commentary
Follow him now on LinkedIn to see What Jumps Out