Colombia | Services inflation shows that minimum wage pressures remain in place

Summary

Inflation in March stood at 5.56% year-on-year, driven by the rebound in food prices due to the rainy season and by persistent pressures in services associated with the minimum wage. Inflation is expected to close the year at 6.5%, amid these pressures and additional climate and geopolitical risks.

Key points

• Key points:
• Inflation in March came in line with BBVA Research expectations and resumed its upward trend, reaching 5.56% year-on-year, representing an increase of 27 basis points (bps) compared to February and 46 bps relative to the end of last year.
• The increase relative to February was explained by food and services.
• In food, this was driven by the rebound in perishables associated with the rainy season, along with the risk of an El Niño phenomenon in the second half of the year, which could generate additional pressures on this basket.
• In services, pressures are concentrated in items other than rents: inflation excluding rents reached 8.7%, increasing by around 200 bps compared to the end of last year, suggesting that the minimum wage increase continues to put upward pressure on these components, alongside strong domestic demand.
• Looking ahead, we expect inflation to continue rising, reaching 6.5% by year-end, driven by the increase in the minimum wage and the strength of domestic demand, together with additional risks such as the conflict in the Middle East and the higher likelihood of an El Niño event.

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