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JPMorgan on September Inflation/BanRep Forecast

COLOMBIA
  • Prior to the September CPI print, JPM had been of the mind that BanRep would decelerate the pace of tightening to 75bp in October, but they now see another 100bp as needed to keep up with inflation expectations that have no sign of being anchored.
  • Despite President Petro’s comments on Wednesday, BanRep’s statement and minutes made clear that the tightening process is not over. JPM continue to think the Bank will need to deliver a higher terminal rate to ensure that the ex-ante real policy rate moves further into restrictive territory, and the board is likely to react in a way that reinforces its independence.
  • JPM also now see a final 50bp hike in December, leaving the terminal rate at 11.50% by year-end (up from 11% before). They continue to assume gradual easing in 2H23 in their base case, but remaining in restrictive territory in real terms.
  • JPMorgan now see inflation moving above 12% next month and closing the year at 11.8% (up from 10.4%). The main driver of this forecast change is their incorporation of lasting pressure on food prices, as local weather conditions (La Niña) seem unlikely to recede anytime soon, while FX passthrough seems to be keeping commodity food inflation more elevated.
  • But, JPM also incorporate higher core inflation, mainly on the goods side in the short term, but also wary of pressure on services. Indeed, service price pressure will likely accelerate in the first part of 2023, as indexation dynamics from high observed inflation at the end of this year take hold.
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