Why inflation in May would bring surprises in results revealed by Dane

This week begins with an eye on one of the economic indicators that, although it has ceased to be the protagonist in recent months, still has a strong weight in the country’s economic projections and perspectives. since it is the basis of the decision made by the Bank of the Republic with interest rates.

This is the Consumer Price Index, inflation or cost of living; which could be considered one of the most notable recent victories of the local economic authorities, since after more than a year of constant falls, That feared 13.34% of March 2023 was left behind and we are getting closer to the target range, which ranges from 2% to 4%.

Currently, inflation in Colombia is 7.16% year-to-date, giving a respite to households’ pockets after the Issuer’s decisions with the increases it had to make to its monetary policy rate to, among other things, discourage consumption. and balance the loads in the demand for products, goods and services.#

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Amid the expectation for the CPI data for May that the Dane will reveal this Tuesday – June 11 – analysts warn that the war against this scourge has not been won and that although there are no reasons for alarm at the moment, Yes, the behavior of this indicator must be carefully monitored.

In this sense, for Camilo Herrera, founder of Raddar, May inflation in Colombia could be higher than anticipated due to several factors that are hitting the prices of non-durable goods.

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“If you look at the relationship between total inflation, non-durable inflation and the PPI of consumer goods, the relationship is evident. In this sense, it must be said that pressures remain, increasingly evident in this sector, such as the implementation of the tax on ultra-processed foods and sugary drinks,” he said.

For this expert, what has already been mentioned, along with the increase in prices of agricultural foods and the costs of imported inputs, driven by the increase in international freight, are key elements that put upward pressure on prices, and could lead the country to an inflation scenario falling below expectations.

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To better know what to expect from inflation in this May reportwe must also talk about the Producer Price Index that was revealed last week by Dane, and that in May 2024 presented a variation of -1.07% compared to April 2024. Likewise, the PPI of the national production presented an annual variation of -0.58% compared to May 2023.

In this report, the only sector that registered a variation lower than the average was mining and quarrying with -6.79%, while the sectors of manufacturing industries (-0.06%) and agriculture, livestock, forestry, hunting and fishing (0.16%) presented variations higher than the average (-1.07%).

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Thus, for Laura Peña, BBVA Research economist for Colombia, they expect a monthly variation in total inflation of 0.51%, that is, an annual variation of 7.2%. This suggests that the data would remain at the same level as the previous month or even slightly above.

“The result will be explained mainly by an increase in food inflation that will materialize in both May and June and that does not cause major concern, since it will be associated with base effects, that is, with statistical factors. With this we say that the inflation path will remain stable during May and June due to base effects on food and a still timid moderation of non-food inflation,” they explained.

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However, after this they aim for the cost of living to drop again and reach a range of 5.4% at the end of the year, in line with the expectations of a large part of the market. Of course, making it clear that there are risk factors that could lead to the reductions being slower than expected, such as a greater-than-expected persistence in rental inflation and a greater-than-estimated rise in diesel prices that They have been proposed months ago by the Government, among others.

The Anif Center for Economic Studies joined this debate, which identifies two risk factors for the behavior of the cost of living on which it highlights that special attention must be paid.

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“Anif projects annual inflation of 6.98% and monthly inflation of 0.36% for May. For the remainder of the year, inflation is projected to continue declining and closes the year at 5.62% (annual change), in line with the majority of analysts,” they began by explaining.

The first element of risk for these analysts comes from the category of accommodation, water, electricity, gas and other fuels, which was the one that contributed the most (in percentage points) to the total variation registered in April.

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“A good part of it is due to rents, which continue to rise, since a good part of these are indexed to the inflation of the previous year (80% today vs 60%-70% before). Furthermore, rentals are the subclass with the highest weighting in the inflation calculation,” they explained.

Likewise, they indicated that although food inflation was the first to begin to decline, in April a change in the trend was evident with an increase in the annual variation, so for May food inflation is expected to follow this trend. path and reaches its peak in July, and then stabilizes.

Factors such as the La Niña phenomenon, with heavy rains, and the final effects of the damage generated by El Niño, will affect the dynamics of inflation in the next two months, therefore, According to these experts, the decisions made will be fundamental.