The Ukraine-Russia war has affected fuel and food prices and caused inflation to increase worldwide. Latin American inflation reached 8.4% for the region in June 2022, which was the highest level recorded since 2005, according to data from the Economic Commission for Latin America and the Caribbean (ECLAC).

• United States:   Highest inflation since 1981
• United Kingdom:   Highest inflation since 1981
• Italy: Highest inflation since 1985
• Argentina:  Highest inflation since 1991
• Sweden:   Highest inflation since 1991
• Canada:  Highest inflation since 1991
• Japan: Highest inflation since 1991
• Germany: Highest inflation since 1996
• Peru: Highest inflation since 1996
• Colombia: Highest inflation since 1999

Colombia came to occupy the one of the top five spots for inflation in the region, despite being far lower in inflation levels reached by Venezuela and Argentina, two countries that chronically occupy the first places. Colombia’s big problem was that, together with Chile, is that the Andean nation maintained stable values in terms of its price indices, but  in 2022 both countries saw price indices costs affected in an unusual way.

Graphic: Melisa Murialdo

Ranking of Latin American Countries by Interannual CPI 2022

1. Venezuela 305.70%
2. Argentina 94.80%
3. Colombia 13.10%
4. Chile 12.80%
5. Honduras 9.80%
6. Guatemala 9.20%
7. Peru 8.46%
8. Uruguay 8.29%
9. Paraguay 8.10%
10. Costa Rica 7.88%
11. Dominican Republic 7.80%
12. Mexico 7.80%
13. El Salvador 7.30%
14. Brazil 5.90%
15. Ecuador 3.70%
16. Bolivia 3.10%
17. Panama 2.10%

Food and non-alcoholic beverages, accommodations, water, electricity, gas and other fuels, are the factors that most influence the rise in the Consumer Price Index (CPI) currently.

Colombian consumption sectors that saw increased prices beyond the composite index level of 13%

• Food and non-alcoholic beverages (27.81%)
• Restaurants and hotels (18.54%)
• Furniture, household items and for ordinary home maintenance (18.25%)

As for food, beef and beef products, rice and milk saw the largest increases during the year that ended.

Causes of Widespread Price Increase

Multiple factors cause this important rise in prices since on the one hand it is affected by the COVID-19 pandemic in 2020 with Covid-19. Another cause already mentioned is the recent conflict between Russia and Ukraine.

Not far behind is the climatic situation associated with the La Niña effect that caused exaggerated rainy seasons, negatively affecting national agricultural production.

Added to this Colombia’s dependence on imports, especially for grains.

Graphic: Melisa Murialdo

Although the minimum wage increased more than inflation, the increase was less than in 2021.

According to a survey carried out by the analyst accountant Melisa Murialdo, spending power associated with the increase in the minimum wage that occurred in 2022, is practically consumed by the increase in basic consumer goods, and a new increase in the minimum wage would influence one more rise in inflation.

Despite the fact that in 2022 the nominal increase in the minimum wage was 16% – almost double the increase in 2021 when it had been 10.07%, as inflation doubled, the annual change in real wages actually decreased by 35% compared to the previous year, since real increases were 4.45% in 2021 and 2.88% in 2022.

Implications of exorbitant price increases – more debt

The problem is that inflation encompasses the generalized rise in prices, and when the price of the basic basket, of daily consumption, is taken into account, the increase was much greater (28%) than the increase in wages (16% nominal; 3% real)  felt in Colombia. Colombian families must resort to new strategies for their subsistence. According to Bancolombia, the main source for retail consumption is employment wages, but since wages fail to cover the increases of the past year, today consumer loans are becoming more popular, including credit cards, personal and mortgage loans.

The granting of retail credit grew by 33.5% during June of 2022 compared to the previous year, while the use of credit cards grew by 43.8% compared to the same month of 2021.

This data is concerning, as bank debt grows and in 2020, Colombia’s central bank, the Bank of the Republic lowered interest rates, making retail lending more accessible, but less sustainable in the long term. The consequence is the rise in retail indebtedness.

Although the prospects for 2023, according to international organizations, are good, currently the concern for Colombian residents is still less, although it is a problem that is affecting the entire world.

Graphic: Melisa Murialdo

Sources:

National Administrative Department of Statistics DANE

Economic Commission for Latin America and the Caribbean (ECLAC)

MT Financial Education Blog

Bancolombia

Permanent Commission for Concertation on Wage and Labor Policies

Author: Melisa Murialdo

Almost two-thirds of chief economists believe a global recession is likely in 2023; of which 18% consider it extremely likely – more than twice as many as in the previous survey conducted in September 2022. A third of respondents consider a global recession to be unlikely this year.

There is, however, a strong consensus that the prospects for growth in 2023 are bleak, especially in Europe and the US. All of the chief economists surveyed expect weak or very weak growth in 2023 in Europe, while 91% expect weak or very weak growth in the US. This marks a deterioration in recent months (at the time of the last survey, the corresponding figures were 86% for Europe and 64% for the US).

In China, expectations of growth are polarized, with respondents almost evenly split between those who expect weak or strong growth. Recent moves to unwind the country’s highly restrictive zero-COVID policy are expected to deliver a boost to growth, but it remains to be seen how disruptive the policy shift will be, particularly in terms of its health impacts.

On inflation, the chief economists see significant variation across regions, with the proportion expecting high inflation in 2023, ranging from just 5% for China to 57% for Europe. Following a year of sharp and coordinated central bank tightening, the chief economists said they expect the monetary policy stance to remain constant in most of the world this year. However, a majority expect further tightening in Europe and the US (59% and 55%, respectively). They noted that 2023 is likely to involve a difficult balancing act for policymakers between tightening too much or too little.

“With two-thirds of chief economists expecting a world-wide recession in 2023, the global economy is in a precarious position. The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world’s most vulnerable,” said Saadia Zahidi, Managing Director at the World Economic Forum. “Leaders must look beyond today’s crises to invest in food and energy innovation, education and skills development, and in job-creating, high-potential markets of tomorrow. There is no time to lose.”

Multiple headwinds are also expected to exert a drag on business activity in 2023. Nine out of 10 respondents expect both weak demand and high borrowing costs to weight on firms, with more than 60% also pointing to higher input costs. These challenges are expected to lead multinational businesses to cut costs, with many chief economists expecting firms to reduce operational expenses (86%), lay off workers (78%) and optimize supply chains (77%).

More broadly, the chief economists expect the global landscape to remain challenging for businesses – 100% of respondents expect global geopolitical trends to continue redrawing the map of global economic activity along new geopolitical fissures and fault lines. This wider economic shift will likely reverberate through trade, investment, labour and technology flows, creating myriad challenges and opportunities for business.

One positive signal is that supply chain disruptions are not expected to cause a significant drag on business activity in 2023.

While the Forum’s 2023 Global Risks Report recently found the cost-of-living crisis to be among the world’s most urgent risks, the chief economists see the crisis potentially nearing its peak, with a majority (68%) expecting it to have become less severe by the end of 2023. A similar trend is evident in relation to the energy crisis, with 64% expecting some improvement by year end. In addition, survey respondents highlighted a number of potential sources of optimism at the start of 2023, including the strength of household finances, growing signs of easing inflationary pressures and continued labour-market resilience.

Consumer Confidence (-22.3%) from Fedesarrollo for December came in slightly higher than the -26.4% expected and represented a modest reversal upwards from November. Both consumer outlook and economic expectations rose slightly.

In terms of propensity to buy, there was a mixed picture with consumer durables slightly better, housing down, and a gap upwards in the appetite to buy vehicles (from -70.1% to -51.6%). From this one number it is hard to draw any conclusions but there appears to be a stubbornness to both the economy and sentiment that few expected at this point.

The latest financial sector numbers for October saw a 1.3% MoM in the overall loan portfolio but analysts are pointing to another sizable increase in provisions and more especially the 3.05% increase in NPLs MoM; one to keep an eye on.

A few weeks ago, I spoke optimistically about the improving weather. In my defense I mentioned the fragility of the situation, and it was clearly a case of heart over head. Since then, I have reported on a disappointing year for the coffee sector and now the rains have returned once again and maybe here for a few months still. President Petro was forced to cut short his trip to Chile in order to visit Cauca where the Pan-American highway has been blocked by landslides, causing tremendous issues for the local population. Again, a situation to keep an eye on.

Later today the Central Bank will release their latest economist survey which will be watched with interest – where will their call be on the terminal interest rate – a week ago we saw JP Morgan move to 13.5%.

Please find below the LinkedIn Video :

https://www.linkedin.com/posts/rupert-stebbings-927b6316a_colombia-economy-peso-activity-7019637902506631168-SI8s?utm_source=share&utm_medium=member_desktop

That is it for this week – have a restful weekend

Roops

The reading of -14.7% was better than the -16.1% consensus and above the April number of -17.5%. In context we haven’t hadn’t had a positive reading since March 2019 (+1.2%) – but the confidence reading has seen a lot of volatility over the past few years, since the -41.3% number in March 2020.

In terms of consumer expectations, we saw an improvement from -7.4% to -3.5%.

All three sub-sectors saw improvements:

• Do you think that within a year your household will economically do better, worse or the same as now?
• Do you think that within the next twelve months we will have good or bad economic times?
• Do you think that the country’s economic conditions will be better or worse within a year than they currently are?

Moving onto economic conditions there was a modest improvement from -32.6% to -31.5%, but versus 12 months ago (-61.7%) there is clearly a sizable move upwards. One noteworthy improvement (-23.4% to -17.9%) was in the area ‘Do you think that your household is economically doing better or worse than a year ago?’

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

Moving onto propensity to buy we saw improvements in all sectors, with housing the standout move.

• Housing -22.6% (from -33%).
• Durable Goods -41.7% (from -45.1%).
• Vehicles -59.3% (from -63.3%).

Next stop Retail and Industrial Confidence on June 23.

Link to Full Report : https://www.fedesarrollo.org.co/encuestas/consumidor-eoc

________________________________________

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops

Inflation for September (0.38%) was marginally ahead of consensus as the 12m rate pushed up to 4.51%. Whilst still moving up there is a feeling among local analysts that we are approaching the ceiling and that CPI will fall back in 2022. This follows on from last week’s decision to raise rates to 2.00% – the first change in 18 months, more rate increases are expected over the next couple of months, although judging by the Central Bank minutes the moves will not be radical as most of the committee members feel that the inflation pressures are temporary. The committee noted that the economy has recovered dynamism in Q3 and that it is being driven by internal demand.

In keeping with this sentiment, the World Bank this week increased their GDP outlook for the country. They have raised their 2021 estimate for the Latam & Caribbean region from 5.2%-6.3% – this still won’t make up for the shortfall in 2020 however we are moving in the right direction. Of concern is the Bank’s observation that the same region will grow only a ‘mediocre’ 2.8% & 2.6% respectively in 2022 & 2023.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

Colombia will fare well in their eyes. They have increased their 2021 GDP estimate from 5.9%-7.7% and whilst that is still short of the advances in Chile (10.6%) & Peru (11.3%) once we get to 2022, Colombia’s expected growth of 4.2% is anticipated by the World Bank to be the regional leader. Further out they expect Colombia to grow 3.9% in 2023.

These headlines are most pleasing, but the recovery of the broader economy can’t be expected to move in a linear fashion – namely because in the middle of that region leading 2022 politicians will appear on every street corner as the Congressional and Presidential elections take place. As per the rest of the globe, life would be simpler without politicians preaching populism and fear in fear in order to win the day.

This all jives with Fedesarrollo who yesterday reported the Consumer Confidence number for September was better than expected. Analysts were expecting a modest improvement to -6.4% from the -8.0% recorded in August, but instead the number was -3%.

Of course no-one wants to be in the RED but in May we were at -34.4%. Boring down just briefly we see that Consumer Expectation rose from 6.2% to 14.2% & the Index of Economic Conditions rose from -29.9% to -28.7%, still a drag on the overall number. In terms of the propensity to buy we find improvements in all three areas : Housing -0.5% (Aug -5.1%) : Durable Goods -44.3% (-45.1%) & Vehicles -43.8% (-44.9%).

Some of this may finally be starting to filter through to both the stock market and Peso – both have outperformed the region over recent sessions – again time will tell but we are starting to see the shoots of recovery.

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops

Industrial Confidence in August dropped to 15.6% from 16.3% the previous month, however it is important to highlight that only in May we were at -3.2%. Whilst levels of inventory and current volumes of orders were both lower than July it is also relevant that the expectations for production rose from 41.9% to 42.8% over the past 30 days. In the end what is to come is more important and that is key.

However, it is the retail side where I will spend more time today as in my opinion, Colombia has long since been an economy driven by the consumer. In terms of retail confidence, we saw a rise from 35.8% in July to 43.5% in the latest report, a sizable move and the highest reading in 40 years (see below). The only negative reading was with regard to inventory (-9.5%) however in the other areas, the economic situation of the business and economic outlook there were some notable gaps to the upside.

This would coincide with the picture across Colombia where commerce appears to be up and running once more after the pandemic. Last week in the latest Real Sector data for July, whilst Industrial Production was flat MoM we saw retail sales (26.9%) far outperform estimates as they continue to trend upwards. Tourists may not yet have re-appeared in droves however whether in Medellin or Cartagena, it is starting to get a table once more, bars are shopping malls are crowded and except for the facemasks in public locations, it is hard to believe COVID is still with us.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

No doubt with 33% of the country now fully vaccinated and a relatively low daily death rate – we are finally seeing an uptick in the confidence to step out of the house once again. The only reason why more people haven’t been vaccinated is the lack of supply, but we are seeing large shipments now arriving once more. One disconnect with all of the above is the Consumer Confidence reading for August which dropped to -8.2% (from -7.5%) when it was expected to tick up towards -5.1%. There is little explanation for this but with the tax reform completed we may see a better reading in September – quite clearly the didn’t manage to survey the throngs of people queuing to park their cars at the mall this past weekend.

This past week I have had a number of visitors from both Europe and the UK and they have all been struck by the normality of what they find, even if that means not getting a table, and snap-back is notable. There are areas of commerce such as Durable Goods and Housing which are still lagging on the propensity to buy scale, however in August we saw the first pick up in auto sales and the others may not be far behind – housing prices are certainly on the rise.

Finally for today, just to reiterate the point that I have made ever since the pandemic crested here in Colombia. This is a country with problems, unquestionably, poverty has risen, there is discontent with the Government’s actions in several respects and the current account situation speaks for itself. BUT, this is a country that for decades has built itself against a backdrop of problems and they are accustomed to overcoming them or circumnavigating them as quickly as any other.

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops