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Analyst Views Following August CPI Data

COLOMBIA
  • *Goldman: Inflation should continue to trend downwards in the remainder of 2023 on the back of favorable base effects and a highly restrictive monetary policy stance. Nevertheless, policy decisions (e.g. elimination of fuel subsidies), prevalent backward-looking indexation mechanisms, and a still positive output gap will keep inflation under pressure. In turn, weather phenomena (e.g. El Niño) pose a risk to domestic food supply and regulated items (e.g. electricity) going forward. Given the policy signals from the August MPC meeting, Goldman Sachs view sizable declines in core inflation and moderate food price pressures as necessary (although not sufficient) conditions to kick off the normalization of the policy stance. Last week’s print significantly lowers the probability of a policy rate cut in September.
  • *JPMorgan: The August CPI surprise reinforces JPM’s base case for the BanRep to maintain the policy rate stable at 13.25% this month. Note that following the August print, it seems likely that both headline and core inflation are to print above the level entertained in the BanRep’s central scenario as per the latest MPR.
    • Yet, JPM maintain the case for easing in 4Q23. Note the real ex-ante policy rate currently sits at 7.0%. But that is about 50bp below what we had estimated. Thus, while JPM maintain the call for the Board to give a green flag to the easing cycle starting in October, they trim the easing to a 50bp cut in both October and December (from 75bp, previously). Therefore, their baseline assumes the policy rate converges to 12.25% by Dec-23, and 8.0% by Dec-24.
  • *Itaú: The large surprise in August’s CPI takes place on the back of a smaller upside surprise July and was concentrated in the same categories - food, utilities, and transport. The more gradual disinflation process relative to peers in the region may be attributed to the gradual unwinding of fuel subsidies, inertia, and transitory supply shocks, among other factors. The upside surprise all but rules out the likelihood of a rate cut at the September monetary policy meeting even though core inflation is evolving more favourably.
    • Itaú currently expect year-end inflation of 9.1% with risks tilted to the upside given recent surprises and the uncertainty from El Niño phenomenon.
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