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Scotiabank Economists Anticipate Rates Pause In March

COLOMBIA
  • Colombian CPI basket indexation effects continue to feed fears of higher-for-longer headline inflation. Market analysts believe that almost 50% of the CPI basket will be adjusted in line with December’s steeper than projected headline inflation print of 13.12% y/y.
  • What’s more, the year started with climate difficulties and above-seasonal rains, which have led to a lower food supply in some regions, also adding to expectation of high food inflation in January 2023.
  • The above factors combined reduce the likelihood of a strong reduction in inflation. Instead, it should remain around 13% in the first quarter of the year, before beginning a slow reduction towards 8.8% by the end of 2023.
  • On the bright side, the year also started with strong FX appreciation and lower international prices in Colombian agricultural inputs, which eventually will help food inflation decelerate significantly. At the same time, goods inflation will also benefit from currency strength if the latest trend holds.
  • BanRep is expected to deliver a new 100bps hike in a split vote at its January 27 meeting, while sticking to a data-dependent approach. However, since inflation is not expected to remain excessively high, the central bank may consider a pause at its March meeting. We expect a discussion on cuts when headline inflation reaches single digits again.
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