Colombia – Inflation accelerates to 3.66% in 2014

Monthly inflation reached 0.27% MoM in December, topping market expectations (BBVA: 0.21% MoM, consensus: 0.23% MoM). Taking this figure into account, annual inflation closed 2014 at 3.66% YoY (vs. 1.94% YoY in 2013). The effects of the exchange rate depreciation is already impacting tradable products. Inflation in this group reached 2.02% YoY in December, 35 b.p. higher than in November. Core inflation indicators revealed an acceleration. On average they reached 2.94% YoY, the highest figure in five years and 17 b.p. above the previous reading in November. Given the ongoing currency depreciation and the effects of El Niño on food prices, we expect inflation to accelerate in the coming months and peak at 4.0% YoY in March. We believe that the currency depreciation will have no second-round effects on prices. Moreover, we see food shocks as exogenous and therefore largely beyond policymaker’s control. Finally, core inflation is close to the 3.0% YoY target and economic activity should not accelerate in the upcoming months. Therefore, we expect Banrep to keep its benchmark rate at 4.5% during the first quarter of 2015.

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