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COLOMBIA: Feb CPI Inflation Unexpectedly Edges Up, BanRep To Remain Cautious

COLOMBIA
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  • CPI inflation unexpectedly accelerated in February, with the headline rate rising to 5.28% y/y, from 5.22%, above the 5.16% consensus. At the same time, core inflation also rose by 5bp to 5.44% y/y, above the 5.26% consensus there. Inflation pressures picked up on the back of an increase in gas tariffs and regulated prices, offsetting a moderation in core services inflation. More positively, core ex-food and regulated inflation edged down by 12bp to 4.9% y/y.
    • BBVA says that despite the strong COP, indexation and high minimum wages are once again ensuring that price growth remains relatively high and delaying convergence to the inflation target. This, in turn, should keep BanRep cautious, despite the changes in the board, thus backing the COP carry in the near term.
    • HSBC expects some of the noncore pressures, such as gas and health taxes, to be short-lived. Their headline CPI estimate is tracking at 0.46% m/m for March, above average but consistent with a decline in headline inflation. Their base case remains that the MPC will deliver a conservative 25bp rate cut in March, although these data somewhat reduce the probability of this scenario.
    • JP Morgan notes that the last time core ex-food and regulated sat at this level was in 1Q22. They say that the sequential momentum for core services decelerated to 5.6%ar, while core goods ran at -0.3% ar, below its pre-pandemic average. Their current forecast is for headline to converge to 4.96% y/y by March, 8bp above BanRep’s central scenario, while core inflation is poised to print 10bp below Staff estimates.
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  • CPI inflation unexpectedly accelerated in February, with the headline rate rising to 5.28% y/y, from 5.22%, above the 5.16% consensus. At the same time, core inflation also rose by 5bp to 5.44% y/y, above the 5.26% consensus there. Inflation pressures picked up on the back of an increase in gas tariffs and regulated prices, offsetting a moderation in core services inflation. More positively, core ex-food and regulated inflation edged down by 12bp to 4.9% y/y.
    • BBVA says that despite the strong COP, indexation and high minimum wages are once again ensuring that price growth remains relatively high and delaying convergence to the inflation target. This, in turn, should keep BanRep cautious, despite the changes in the board, thus backing the COP carry in the near term.
    • HSBC expects some of the noncore pressures, such as gas and health taxes, to be short-lived. Their headline CPI estimate is tracking at 0.46% m/m for March, above average but consistent with a decline in headline inflation. Their base case remains that the MPC will deliver a conservative 25bp rate cut in March, although these data somewhat reduce the probability of this scenario.
    • JP Morgan notes that the last time core ex-food and regulated sat at this level was in 1Q22. They say that the sequential momentum for core services decelerated to 5.6%ar, while core goods ran at -0.3% ar, below its pre-pandemic average. Their current forecast is for headline to converge to 4.96% y/y by March, 8bp above BanRep’s central scenario, while core inflation is poised to print 10bp below Staff estimates.