High inflation could warrant surprise Central Bank move

COLOMBIA - In Brief 07 Feb 2022 by Andres Escobar

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In January 2022, CPI annual inflation was 6.94%, surpassing the 6.31% expected by the respondents to the Central Bank survey. Food, increase of 19.94%, however 186 of the 188 classes of goods and services had price increases. So, it is a widespread phenomenon that goes well beyond food (see Table).The worst performers were: a) potatoes, which in addition to the winter wave, witnessed costlier inputs, leading it prices to rise a whopping 140% (its inputs rose 237%); b) beef, due to a shortage attributed to higher exports and higher prices for concentrates; these two and c) milk, fresh fruits, and bananas together explain half of food inflation. The rise of food impacted meals at restaurants.Apart from food, clothing rose, urban transport and utilities rose substantially. The explanation lies in higher import prices die to disruptions in supply chains, peso depreciation and gasoline increases.For 2022, the Policy Report of the Banco de la República projects an inflation of 4.3%. Some issues will still concern the monetary authority: rise in the exchange rate, the increase in the minimum wage, January inflation above the CB’s pessimistic end of the inflation forecast’s fan chart, the indexing of some items of the CPI to inflation, and the fact that the stance of monetary policy is still expansionary. For people on the street inflation makes day-to-day worse. Taking into consideration that inflation is close to 7%, and that productivity increased above 1% the yearly minimum-wage rise of 10% looks basically compensating for a terrible year price-wise.Producer prices also came in quite strong. PPI for national production rose above 28% (annually) in January, while PPI for go...