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Photo: The Spectator
The Consumer Price Index (CPI) continued its downward behavior, standing at 7.16% for its annual variation in April (that is, compared to the same month in 2023).
This represents a decrease of 5.66% compared to the figure recorded in April of last year, according to the information revealed by the National Administrative Department of Statistics (DANE) this Wednesday. The entity maintains that this level has not been recorded since January 2022.
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In the annual perspective, by expense divisions, the greatest variations are recorded in education (11.40%) transportation (10.42%) and restaurants and hotels (9.8%).
From the monthly analysis (compared to March), the variation was 0.59%. The data is mainly explained by the food division, which grew 1.16%.
This was expected news, since at this point all projections indicate that the CPI will continue to cool engines for the remainder of this year and, also, for 2025. According to the majority of analysts consulted in the Financial Opinion Survey of Fedesarrollo, the CPI for March stood at 7.16%. By the end of the year, the data from this survey places the indicator at 5.51%, in line with the data from the Banco de la República survey (in a range between 5.5% and 6%).
However, there are certain tensions that continue to show unusual pressures on the pockets of Colombians.
On the one hand, rents continue to be one of the biggest drivers of inflation this year and their contributions to the rise of the CPI are the largest among all the expenses that DANE monitors from practically any perspective (monthly, annual or year-to-date).
On the other hand, the weight of electricity continues to be considerable in the configuration of the CPI in the country. This service grew 1.56% in its monthly variation (that is, compared to the results of March 2024) and is at 19.36% from the annual perspective (in contrast to April 2023).
And the contributions of this service to total inflation are among the highest in the annual view, together with rents.
Although the reservoirs have been recording a slow (but sustained) recovery, the pressure around electricity (with greater generation from thermal plants) has led to prices constantly rising in the country. For example, with the exception of some peaks in late 2022 and early 2023, electricity growth in annual inflation is at its highest point since 2016, according to DANE.
Piedad Urdinola, director of the entity, stated that “20 of the geographic domains reported by the IPC showed an increase in electricity prices, with Santa Marta being the city that had the greatest variation (3.97%).”
At the same time that some items have been gaining prominence in the CPI measurement, other key items have lost oxygen, such as food.
In the annual measurement, food registered growth below 3%, being one of the three items that grew the least compared to the results of April of last year.
It is worth remembering here that when inflation reached its peak, the great driving force behind the increase in prices was food, which grew hand in hand with a sharp rise in the prices of agricultural inputs (associated with problems in global logistics chains and to Russia’s invasion of Ukraine, mainly).
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Where is inflation heading?
Although compared to March, the decrease in monthly inflation for April may not seem very high, it must be taken into account that this month may represent one of the highest points in CPI growth for the year.
According to Camilo Herrera, president of Raddar, a firm specialized in consumption, half of the inflation in the country would occur between the first three or four months of the year. This corresponds, mainly, to the market’s assimilation of the increase in the minimum wage, as well as the increases derived from the 2023 CPI.
And there are also spending peaks such as the school season that started in January, Easter and even Mother’s Day (one of the celebrations that most drives consumption in the country).
With these data in mind, the April result can help see where inflation is going in Colombia.
All projections point to a continuous and generalized decrease, both in the total and in the basic (which excludes food and regulated products).
For example, under the vision of the Bank of the Republic, “core inflation would decline at a greater rate than we were projecting in the January report, especially due to lower inflationary pressures in the basket of goods,” said Hernando Vargas, manager of technical of the entity, during the presentation of the April monetary policy report produced by the entity.
Core inflation would close the year at 5.1%, compared to the 5.4% that the Bank itself had projected in its January report.
Regarding total inflation, the Colombian central bank projects that it would end 2024 at 5.5% (previously it had been estimated at 5.9%) and would reach the goal of 3% in 2025 (the forecast was 2.8% in January of this year).
The convergence of inflation towards the Bank’s goal (3%) is key, as it is the determining factor in the decisions that this entity makes regarding its interest rates.
During the presentation this Tuesday, Vargas assured that “given that inflation expectations remain above 3% in a long part of the horizon, monetary policy is required to maintain a contractionary stance to guarantee the convergence of inflation at our goal on the horizon announced by the board of directors in November of last year.”
By the end of this year, analysts project the Bank’s rates to reach 9.25% and stand at 5.8% by December 2025.
This seems to confirm the central bank’s confidence that the CPI is on a controlled downward path, despite the effects of El Niño on issues such as electricity and food.
