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Scotiabank: Balance Of Inflation Risks Clearly To The Upside

COLOMBIA
  • Inflation data was well above the median forecast in BanRep’s survey (0.91% m/m), and Scotiabank Economics’ projection (1.11% m/m). Food prices again posted the biggest increases with all items posting positive m/m contribution. January’s CPI result brings annual headline inflation to 6.94% y/y, above the ceiling of BanRep’s target range (2%–4%) for the sixth month in a row.
  • Core inflation also increased from 3.44% y/y to 4.47% y/y, while ex-food and regulated goods inflation came in at 3.47% y/y (up from the 2.49 % in the previous month). January’s inflation reflects a new significant shock to food prices due to higher input costs, but also the effects of indexation on core components.
  • Scotiabank continue to expect a 100bps rate hike in March’s monetary policy meeting and that headline inflation will start to moderate in H2-2022. Having said that, since the balance of risks is clearly to the upside for both headline and core inflations, if CPI does not begin to converge on target in Q2-2022, Scotia would revise their forecast with a higher-than-expected terminal rate, which they currently estimate at 5.75%.
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