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JPMorgan on October CPI/BanRep

COLOMBIA
  • The lack of circuit breaker implemented so far in still unstable Colombian asset prices and the COP should prompt the authorities to consider some actions prior to the next voting meeting in JPMorgan’s estimation.
  • While their October headline CPI print was close to the mark overall, the components were more troublingly skewed to a higher-than-expected core inflation (mainly core goods) offset by lower than expected (but still very high) food inflation.
  • JPMorgan continue to see some relief coming from lower food and energy prices ahead, with the latter likely to be seen already in November as lower electricity tariffs are expected to be brought into the mix. While food prices continue to run hot, JPM expect normalization in weather conditions in 2023 alongside stabilization in international grains prices, with some likelihood that food prices could at some point deliver significant and sustained m/m deflation.
  • Nonetheless, JPM have been surprised by FX passthrough in recent months, and the outsized moves lately in the currency should continue to work their way into core goods prices, even if domestic demand starts to falter as they expect. Their end-2022 forecast is now 40bp higher to 12.2%. End-2023 inflation is revised up 70bp in the latest forecast to 7%.
  • JPM still forecast BanRep to hike 100bp to 12% in Dec and follow up with at least 50bp more in January to arrive at what could be considered a clearly restrictive rate.
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