The National Oceanic and Atmospheric Administration (NOAA) and the Climate Prediction Center (CPC) have confirmed that ENSO-neutral conditions are currently present in the equatorial Pacific Ocean. However, technical indicators suggest a rapid transition, with a 61% probability of El Niño emerging between May and July 2026. For international investors and executives operating in Colombia, this shift indicates a looming period of increased operational costs, specifically within the energy and agricultural sectors.

The El Niño Southern Oscillation (ENSO) is a recurring climate pattern involving changes in the temperature of waters in the central and eastern tropical Pacific Ocean. During El Niño, trade winds weaken, allowing warm water to move toward the west coast of South America. Conversely, La Niña is characterized by stronger trade winds and cooler ocean temperatures. These fluctuations disrupt global atmospheric circulation, altering rainfall and temperature patterns across the planet.

In Colombia, the effects of these phenomena are distinct and significant. El Niño typically results in a sharp decrease in precipitation and a rise in average temperatures. Because Colombia relies on hydroelectricity for more than 60% of its total power generation, extended dry periods lead to lower reservoir levels. This forces the grid to rely on more expensive thermal generation fueled by natural gas and coal, which historically drives up spot market electricity prices for industrial and residential consumers.

“There is a 25% probability that the index reaches or exceeds +2.0°C during the Northern Hemisphere winter,” according to the National Oceanic and Atmospheric Administration.

The current technical diagnostic from NOAA shows that while the sea surface temperature index in the Niño-3.4 region was recently -0.2°C, the easternmost indices have already moved into positive territory. Furthermore, the equatorial subsurface temperature index has increased for five consecutive months. This accumulation of ocean heat is a primary driver behind the high probability of El Niño persistence through the end of 2026. Some models, including those from the European Centre for Medium-Range Weather Forecasts (ECMWF), suggest a 25% chance of a “strong” or “very strong” event, where temperatures exceed the 2.0°C anomaly threshold.

The Ministerio de Minas y Energía and the Comisión de Regulación de Energía y Gas (CREG) are monitoring these developments closely. A strong El Niño would place additional stress on a natural gas system already facing structural supply constraints. Reduced hydroelectric output coupled with a potential deficit in gas supply could lead to significant energy price volatility. In past events, such as the 2015-2016 cycle, these conditions resulted in substantial financial pressure on the national utility system and necessitated emergency conservation measures.

Agricultural productivity is equally at risk. The Instituto de Hidrología, Meteorología y Estudios Ambientales (IDEAM) has identified the Caribbean and Andean regions—including departments such as La Guajira, Magdalena, and Antioquia—as highly vulnerable. During El Niño, these areas face increased risks of forest fires, water scarcity, and crop failure. For agribusinesses and exporters, this translates to disrupted planting cycles and higher production costs for staples like corn, potatoes, and vegetables, which can fuel domestic food inflation.

Conversely, when La Niña is in effect, Colombia faces the opposite extreme. The cooling of the Pacific leads to excessive rainfall, which can cause devastating landslides and flooding in mountainous terrain. While La Niña can replenish reservoirs, it often damages infrastructure and logistics networks, complicating the transport of goods to port. The current transition out of a La Niña phase provides a brief window of ENSO-neutral stability, which the CPC estimates has an 80% chance of lasting through June 2026.

For the international business community, the significance of these weather cycles extends to macro-economic stability. Persistent dry weather can impact GDP growth by raising the cost of basic services and reducing agricultural output. Strategic planning for 2026 and 2027 must account for these climatic variables. Meteorologists at Colorado State University note that El Niño also tends to reduce hurricane activity in the Atlantic, which may provide some relief for coastal logistics, but the primary threat remains the inland hydrological deficit.

As the Ministerio de Ambiente y Desarrollo Sostenible activates preventive mechanisms, companies are encouraged to review their energy procurement strategies and water management protocols. The next comprehensive diagnostic update from NOAA is scheduled for May 14, 2026, which will provide further clarity on the intensity of the projected warming trend. Understanding the mechanics of the ENSO cycle is no longer a matter of environmental interest but a necessity for risk mitigation in the Colombian market.

Satellite sea surface temperature departure in the Pacific Ocean for the month of October 2015, where darker orange-red colors are above normal temperatures and are indicative of El Niño. (Image credit: NOAA)

Headline photo: the Pacific Ocean from Guachalito Beach, Chocó, Colombia (photo © Loren Moss)

Equally no one would argue that events in Venezuela over recent works have been deplorable. But it is a sovereign nation and that leaves the options for outside actors very limited. If the US & United Nations can’t budge Maduro it’s highly unlikely Gustavo Petro can, yet there are those criticizing him both directly and indirectly. Whatever happens to Maduro, Colombia needs to be pragmatic, it doesn’t have the luxury of closing the border to trade, low cost gas being a prime example of a product that the country is going to need in 2025. Of course it could be purchased from the US, but would they sell at a heavy discount ?

No argument either from the public or private sector that overnight rates, due to Banco de la República – Colombia sleepy attitude, are higher (10.75%) than they should be. This week Departamento Administrativo Nacional de Estadística – DANE Colombia will release the August inflation data with a MoM decline from 6.86% to 6.38% and the hope is that, having taken August off, the Central Bank will in a few week’s time, cut rates by 1%.

It’s also hard to argue that La Niña is arriving, and it seems bang on schedule. Weather experts predicted a late August start to the rainy season and thus far they seem to be correct. It is expected to run until the end of the year – fingers are crossed that the level of destruction is moderate.

Finally, no-one would argue that the female football stars of Colombia should be the protagonists over the next few weeks as the country hosts the U20 FIFA World Cup, especially after winning 2-0 in their first game. Sadly, the local press spent most of the next day discussing men’s football from around the world – and perhaps sadder still….all very predictable.

Have a great week….and Labor Day !

Roops

In another shift: El Niño who? The little boy has almost been forgotten already. Yesterday’s news. Reservoir levels, according to XM, are still only at 39.5%, but that is a long way above the 27% critical threshold seen previously, and all eyes are now on La Niña.

When it rains in Colombia, it really rains.

When pushed by colleagues about “rainy London,” I discovered that even in a normal weather pattern, Medellín receives 6x the rainfall of London. La Niña is a whole new level.

From Fedesarrollo, we saw data this week for an April improvement in retail confidence (15.3%) while industrial confidence (-3.4%) was little changed month-over-month. For choice, there was a better beat to the future outlook while both numbers were well up on April 2023. Last week we also saw a modest increase in consumer confidence (-11.4%) from the -13% in March. These numbers continue to move around month to month.

From the National Administrative Department of Statistics (DANE), we had the latest import data (March) and there was another decline of 18.8% to $4.8 billion USD. Across the board — from agriculture to manufactured goods to raw materials — there were sizable declines. And despite exports also struggling in March, the trade deficit improved to $686 billion US versus just over $1 billion USD 12 months ago. Again, this is a reflection of declining domestic demand.

READ MORE: Petro’s Reform Plans Stagnate as Colombia Sits at an Impasse

Ecopetrol was also in the news this week. Moody’s Ratings lowered its rating from ba3 to b1 and raised the outlook from negative to stable due to the increased debt requirements and cash flow situation. Reserves were also a slight concern. Also, Finance Minister Ricardo Bonilla made mention of increasing production to 1 million bpd — which would be a 30% increase from where we are today. We have heard this for years, since the days of former President Iván Duque and ex-Ecopetrol head Felipe Bayon, and it still seems fanciful. It would be most welcome news but Colombia, no doubt, but for several years now, the industry simply isn’t coming up with the new reserves it would require and needs to move on from the obsession with oil.

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While this was slightly better than expected, the positive difference is likely not enough to radicalize the central bank into taking more drastic measures at the end of the month. Fedesarrollo continues to anticipate a year-end CPI rate of of 5.51% — but we are already at 3.34% year-to-date.

The complications related to El Niño may be disappearing into the rearview mirror, but La Niña is now on the horizon — and won’t be helpful when it comes to inflation. Even thought we have been falling for 13 straight months — and 12 months ago we were at 12.82% — Banco de la República is behind the curve.

Along the same lines, Fedesarrollo’s forecast for an year-end overnight interest rate of 8.25% is also looking optimistic given the conservative nature of the central bank.

El Niño, as mentioned, is gradually leaving us. This has helped energy reservoir levels rise from 28.0% to 34.5%, and while water rationing continues in Bogotá, consumption has fallen. Next up, also as mentioned, is La Niña and the expectation for heavy rainfall.

In terms of economic inflows, international tourism continues to boom, with 1.6 million visitors arriving in the first quarter of 2024, an increase of 7.6%. While Bogotá had the most visitors, there is no question that Medellín and Cartagena are drawing the most tourists. The main visitors thus far in 2024, accounting for 26.6%, are from the United States. Given the criminal news emanating from Medellín, in particular, in recent months, most are welcome but many are not — including those disparaging referred to as the “passport bros.”

Ecopetrol’s first quarter results were released this week as well, and thye were, as expected, negative year-over-year. Production was slightly down, however it was the decrease in the price of Brent oil and the stronger performance of the Colombian peso that did the damage.

Ricardo Roa, chief executive officer of Ecopetrol, has been under some political pressure recently, but he has no intention of stepping down. Instead Roa is concentrating on 2025 and the anticipated shortfall in gas supply. Venezuela is prepared to sell at a favorable price — but first the pipeline needs a lot of work. Additionally, given that the United States has reimposed its embargo, permission will need to be sought from Washington.

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GM are not alone, with other manufacturers having also reduced working hours — and this has been a long time coming.

Ever since overnight interest rates started to rise, the consumer confidence data from Fedesarrollo has reported a falling propensity for vehicle purchases, and forecourt sales have collapsed. On top of this, rolling back the clock, Venezuela was once an key importer of vehicles from Colombia, and that is no longer the case.

It is too late for GM. But, hopefully, Banco de la República will this week cut those overnight rates — by at least 50 basis points — from the current 12.25% in order to support not just the vehicle sector but also the housing and consumer durable markets, which have been equally hit by inflation and central bank policy.

Anything less than 50 basis points is unthinkable — and might lead to them being chased down the road by a pitchfork waving population. Anything more would be welcome shot in the arm for both local markets and investors, as the committee has been overtly conservative so far in their rate-cutting cycle.

With El Nin̈o now on the way out, they should cut by 75bps — if they’re brave enough.

Speaking of El Niño, the rains have arrived! Nothing biblical, so far, but certainly more than a normalization. Reservoir levels are rising, but remain close to critically low levels. Bogotá remains under water-rationing conditions, but already there are those discussing the arrival of La Niña and, with it, the reverse problems of potential landslides and floods.

In other news: Colombia has received praise from the International Monetary Fund (IMF) as they agreed a new two-year $8.1 billion USD stand by loan. The organization highlighted the country’s institutions and the robust economy while complimenting the government on its efforts to move away from fossil fuels.

Finally, in politics, President Gustavo Petro and his cabinet were locked away in an enclave all weekend as we await pronouncements as to whether there will be any change in direction when it comes to pension, education or even health reform proposals, which may yet reappear in the coming months. However, the initial statement was contrite in nature recognizing that mistakes had been made.

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Click above to watch the video

• Gringos gone wild! “Cannabis Jimmy,” Californian pot producer caught near Medellín.
• Colombian economic growth stalls, 277,000 jobs lost in January & February alone.
• Former President Alvaro Uribe’s prosecution moving forward under new attorney general.
  • From 2018: Former Colombian President Álvaro Uribe Submits Resignation from Senate Amid Investigation
  • From 2020: Breaking News: Former Colombian President Alvaro Uribe Under House Arrest
• Water rationing comes to major cities in Colombia due to serious drought conditions.
• Collective Mining (TSX: CNL) is finding more gold, copper & silver in its Apollo porphyry.
• US Ambassador Palmieri meets with Medellín’s Mayor Gutierrez & pledges full support against sexual predators and human traffickers.
• The Feria 2 Ruedas motorcycle convention returns to Medellín May 2-5, bringing commerce, fun & learning opportunities.

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Update: James Landis responds.

We promised to provide an update if we hear from Mr. Landis and he provided us with the following statement:

I am innocent of the charges filed against me.  I was and am not selling cannabis and was only doing educational tours to mostly Americans who visited our house.  The charges against me are serious and I was set up by a bad person living in our house and he went to the police and made up all these lies about me being a drug trafficker , etc. None of that is true.

To start, in a report this week, Davivienda Corredores reiterated the local experts view that El Niño will disappear in April as we move towards a normalized climate pattern. By August, however, we can expect La Niña to arrive.

Unfortunately, despite the hardship that El Niño brings, it is is the biblical rains of La Niña that traditionally brings greater suffering. There is the human cost of landslides, which in turn block roads and highways to make the time to market both more lengthy and more expensive. This leads to higher inflation. So out of the fire, onto the floor for a few months — and then into the frying pan. Keep an eye on this, and hopefully the authorities are wrong.

Fedesarrollo gave its latest look at the market and expectations for 2024. They are looking for GDP growth of 1.4% (up from their projected 1.3% in January) and a year-end CPI of 5.4%. They are looking for overnight interest rates to close 2024 at 8% (currently 12.85% so much work to do) and the Colombian peso to remain stable, ending the year at 4,071 to $1 USD. That GDP number is slightly higher than the 1.3% the International Monetary Fund estimated a few days ago.

For those still looking at Colombian equities, energy is preferred sector, with ISA Interconexión Eléctrica and Grupo Energía de Bogotá being two of the top three picks.

Fedesarrollo also reported the latest retail confidence (14.5%) and manufacturing confidence (0.2%) figures for January. There was small decline in the former, but a healthy increase in the latter (up from -4.3% in December). In the same report, fourth quarter 2023 exporters reported a marked increase in expectations going forward.

The government, while feeling out their budget plans for 2024, have also given more powers to President Gustavo Petro in terms of some disbursement. Colombian Finance Minister Ricardo Bonilla also announced that they were also looking hard at infrastructure projects that aren’t advancing and renegotiating their terms. Such a movie would free up resources currently earmarked for other priorities. It’s complicated and lacking transparency, but be aware of it.

In the same vein, Petro has again implored his own team to travel in economy and to hold virtual meetings where possible in order to save money.

In politics, the labor and pension reforms will be back on the congressional menu next week. I’m not sure what they have all been doing for the month since holidays ended. Not a lot, most probably.

Finally, the Supreme Court again failed to elect a new Attorney General. They will try again in a couple of weeks. The different political parties, all of whom have skeletons in the cupboard, are desperate to have their man or woman in charge.

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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

Most of the headlines were reserved for the December Inflation data which rose 1.26% MoM and 13.12% YoY – both higher than expected and causing media distress. When we look back on 2022 the standout issue is food which rose over 27% (2.66% alone in December) – Colombia is not unique in this owing to global events but it has certainly felt the impact as hard as most. This helped contribute to a core inflation of 9.99% for 2022 – a number that also moved up from 9.48% in November. It is worth noting that both the monthly and annual reading was above all 19 analysts’ consensus estimates according to Bloomberg.

Now what? For the authorities this is a key moment they are going to have to ride out. This isn’t on them, but it is on them to manage the situation. Much has been made of Finance Minister Ocampo, who has done outstanding work, and his calls for the Central Bank to not raise rates due to this being supply side inflation – but rates will have to be increased to at least 12.5% when the committee meet again at the end of the month.

That was the terminal rate when Bloomberg & Fedesarrollo last conducted their surveys but can that line hold? The 16% minimum wage increase is about to start being paid, with the government furiously—and correctly—trying to prevent a knock-on effect with 200 products and services in the market. Now, 13.12% will become the benchmark for a mass of other products – somehow the authorities must break the cycle. The reality is that CPI may yet go higher, obviously not to those seen on the streets of Caracas or Buenos Aires, but only Chile (13.3%) amongst the mainstream Latam economies has higher inflation.

Away from inflation, although it is hard to ignore there were a couple of other data points…

PMI Manufacturing from Davivienda, surprisingly perhaps, in December rose to 51.1 from 47.3 the previous month. The number has bobbled about, and this latest reading demonstrates there is still some stubbornness in the system.

Coffee Production for 2022 totaled 11.1 million sacks – down 12% YoY and here we see the clear impact of La Niña. One never wants to blame “the little girl,” but the rains have been close to unprecedented, and coffee is just one area of agriculture that has been impacted. The knock-on effect is seen from inflation to exports.

Another commodity which has disappointed in the first week of 2023 is oil. It has slipped due to global factors and that presses on the Peso which yesterday (Thursday) fell below 5000 once again before recovering. Obviously, the dollar is enjoying a global bump and this has an impact but also the dearth of traders in the offices of Colombia also impacts.

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That is about it, the next update will be from Medellín, in the meantime have a wonderful weekend wherever you are.

Roops

According to the paper: “Impact of the 2010-2011 La Niña phenomenon in Colombia, South America: The human toll of an extreme weather event,” La Ñiña is characterized by intense and abundant rainfall, increased river flow, and subsequent flooding in Colombia, though it leads to dry conditions in the Peru, Bolivia and Chile.

The same research paper in its conclusion states that Colombians are most negatively affected by the La Ñiña phenomenon are those in the lower Magdalena and Atrato river basins. The Magdalena, Colombia’s largest internal river, empties into the Caribbean along the East side of Barranquilla. The Atrato runs through the Chocó department before emptying into the Gulf of Urabá. Both river systems pass through parts of Colombia with socially vulnerable populations subject to both poverty and exploitation by rural organized crime.

Carmen Gonzalez Romero, Colombia country manager for the ACToday project told the Inter Press Service news agency: “On the one hand, heavy rains could destroy the crops of subsistence farmers. This would not only impact their access to food in the present but also in the near future threatening their basic grain reserves. On the other, large producers, associated with a guild and higher technological capacity, could also see their business endangered. This would generate a vicious cycle, laborers that work for them would lose their jobs and their income. Additionally, heavy rains could impact civil infrastructure, limiting the access to markets, which are essential for food security in the country.”

NOAA says that this La Nina is expected to last through the early spring 2022. For the upcoming winter season, which extends from December 2021 through February 2022, there is an 87% chance of La Nina. La Nina is one part of the El Nino Southern Oscillation (ENSO) cycle, which is characterized by opposing warm and cool phases of oceanic and atmospheric conditions in the tropical Pacific Ocean. Consecutive La Ninas following a transition through ENSO neutral conditions are not uncommon and can be referred to as a “double-dip.” In 2020, La Nina developed during the month of August and then dissipated in April 2021 as ENSO-neutral conditions returned.

Above image: This is what a La Nina looks like: Cooler-than-average sea surface temperatures along the equator is indicative of La Nina in the tropical Pacific Ocean in September 2021. (NOAA Climate.gov)