What Jumps Out: Inflation & Rates

The big question on most investors’ lips is ‘Does Colombia have inflation under control?’ Judging by the latest reading for March, the jury is still out.

The 1% number for the month and 8.53% for 12 months was basically in line with expectations—a first for a few months now, however there is clearly still work to do. We are still at levels that haven’t been seen for many a year and the consensus is that rates are going to close the year well outside the authorities’ 2-4% range; in fact anything close to 5-6% would likely be considered a victory at this juncture. The latest Fedesarrollo survey placed consensus at 6.4%.

The Central Bank who last week voted to only raise rates by 1% to 5% admitted the same themselves – despite the 5-2 split vote (2 members wanted 5.5%) – according to the minutes published on Tuesday there is a consensus that rates need to go higher. Again, the latest view of the Fedesarrollo survey was we would end 2022 at 7%, still some way off.

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

The 1% increase was viewed as both prudent and part of a long-term policy that will continue over the next few months to increase rates and combat prices.

Those prices in March were heavily impacted by food which rose 2.84% YoY. Over recent years that same element has risen about 1% on average in the same month. The importance of food inflation has been well documented over recent months, the combination of increased costs plus a weak Peso has driven up direct prices. But in addition, there are the indirect costs such as feed, fertilizer, wheat and other agricultural equipment which has also impacted. This also saw the government act this week. Last month the authorities decreed those 165 agriculturally related goods would be tariff free, and this week they added a further 39 which included animal feed, chemicals and veterinary products.

Not being heavily discussed, but also a factor is the weather. It has been a long time since Colombia enjoyed a genuine 2-month summer – and if the sun isn’t shining in Colombia that means it is probably raining heavily. Again, newsreels have been filled with images of landslides and flooding rivers; crops often rot in the fields or fail to make it to market. The 4G projects are progressing well enough but they need to be completed and complemented by G’s 5-20 before the problem of getting goods to market can be fully avoided.

So work to do on inflation and the global situation isn’t helping much, one bright spot is the Peso which has fallen to 3740 (against the dollar) and which is helping lower import costs somewhat – whether that is due to rising oil or the realization that a Petro victory is less likely, is unclear, but the Central Bank will care little at this point.

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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