Inflation Falls Again in Colombia. How Large will the Next Interest Rate Cut Be?

Last night, the National Administrative Department of Statistics (DANE) published CPI data for February and revealed a year-over-year inflation rate of 7.74%, which once again reflected a decline in inflation (from 8.25% in January) — and was almost bang in line with the 7.73% expected in the latest survey from Fedesarrollo. That makes 11 months of decline. The PPI number saw a significant decline of 5.38% in the same month.

Photo: Leonardo Villar, governor of Banco de la República. (Photo credit: Banco de la República)

The month-over-month increase of 1.09% was impacted by education (as is normal in February), which rose by 8.74% and contributed 30% of the monthly rise.

This was equalled only by housing (1.07%), which this time around wasn’t overtly impacted by energy (0.96%) but more so by increasing rental prices and the cost of water. El Niño, this time, has been making an impact differently. Food (1.13%) and transport (0.86%) in the meantime had only a modest impact.

Overall, these result leave one big question. What will Banco de la República head Leonardo Villar and the rest of the Magnificent Seven do at their next meeting?

Logic dictates that they won’t cut overnight rates by the 1.00% (down to 11.75%) that Finance Minister Ricardo Bonilla has called for. The finance minister is not alone, as much of the private sector has been calling for the same cut.

Despite these calls, the committee is habitually chasing the curve and will likely opt for a more modest rate cut.

• The other macro number this week was exports for January, which rose 1.3% and totaled $3.74 billion USD. In short, if oil hadn’t risen 15.6% FOB, the number, despite agriculture being positive, would have been negative. There was also a welcome 15.7% rise in total tonnage due to coal, but as prices fell it wasn’t reflected in FOB terms.
• In politics, it was another week to forget, primarily because the politicians did little. We still don’t have an attorney general, as the Supreme Court remains in stalemate. As for the reform process, there has been little to no progress. The speed of budget disbursements was again taking up some column inches this week but there was little substance.

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