Colombia : Food and transport costs push inflation to 38-month high

Inflation in January stood at 0.64% MoM (3.82% YoY), beating analysts’ forecast (consensus: 0.55% BBVAe: 0.78%). As anticipated, food (1,52% MoM) was the main driver of inflation, with the cost of vegetables, tubers and cereals surging over 4% from the previous month. Increases in transport costs, notably bus and air fares, provided the second largest contribution to the rise in the rate. The sharp devaluation of the exchange rate in recent months is also pushing tradable inflation, which stood at 2.3% MoM, 30 basis points above December’s figure. On the other hand, core inflation accelerated slightly in January, registering a variation of 3.1% YoY (vs. 2.9% YoY in December). The effect of the devaluation of 14Q4 on inflation will go on during 15Q1, bringing inflation rates close to 4%. Yet inflation expectations remain anchored around 3%. Moreover, judging by analysts’ expectations of end-of-year inflation of 3,3%, it seems the market is interpreting the effects of devaluation on inflation as temporal. This reading, in conjunction with the fact that core inflation shows no signs of acceleration and that the economy is losing impetus, will likely open the window for interest rate cuts, which we expect to take place in 2Q15.

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