Colombia: Inflation plunges in August
September 5, 2016
The Central Bank’s (BanRep) efforts to fight inflation through tighter monetary policy seem to be finally paying off. In August, consumer prices dropped 0.32% over the previous month (July: +0.52% month-on-month), which was the first monthly drop in nearly three years and the sharpest in over a decade. In addition, the drop in consumer prices in August contrasted market expectations of a 0.16% increase. According to the Colombia National Statistics Institute (DANE), food prices decreased the most over the previous month as food supplies recovered from the El Niño-induced drought and the truckers’ strike came to an end. The communication and recreation components of the price index fell further in August.
Inflation fell to 8.1% in August, which is still well above the Central Bank’s tolerance margin of plus/minus 1.0 percentage point around its 3.0% target, after peaking at a record high of 9.0% in July. Commenting on the latest inflation result and its evolution, Ben Ramsey, Emerging Markets Sovereign Risk Analyst and Katherine V. Marney, Economist at JP Morgan said:
“12-month inflation dropped markedly from 8.97% to 8.10%, in our view confirming that the peak for inflation has been reached. Indeed, we see a sharply downward sloping trajectory from here until the middle of 2017 given a strongly favorable base effect and fading supply shocks. We see inflation ending 2016 at 6.0% (down from 6.4% before) and moving back into the 3%+/-100bp target range by July.”
Core consumer prices, which exclude volatile items such as fresh food and fuels, jumped 0.34% over the previous month in August, well above the 0.08% rise in July. Finally, core inflation inched up from July’s 7.0% to 7.1% in July, continuing the upward trend that began in mid-2014.
Author: Luis Lopez Vivas, Economist