MNI China Daily Summary: Wednesday, December 11

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Scotiabank on Colombia CPI Data/BanRep Decision

COLOMBIA
  • In contrast to the headline rate, core inflation increased again, from 5.94% y/y to 6.50% y/y, the highest rate since December 2003, while ex-food and regulated goods inflation came in at 5.87% y/y (up from 5.26% the previous month), the highest level since August 2016. These results show upside pressures on key prices owing to indexation effects in items such as rent fees and utilities.
  • The consolidation of economic activity, meanwhile, is probably fuelling further price rises; in fact, consumption credit demand is increasing above 18% y/y pace, which points to still-strong demand.
  • Higher core inflation should, in Scotiabank’s opinion, motivate a 150 bps rate hike at the June 30th monetary policy meeting.
  • Since the last meeting, economic activity has shown stronger-than-expected results, while inflation is driven by upside pressures in core components. They expect June’s y/y headline inflation to increase again, due to the negative statistical base effect on the back of the normalization in food prices after the nationwide strike one year ago. It will be interesting to see if the VAT holiday (June 17th) moderates the expected spike.
  • That said, markets will only have confirmation of a downward path after the July releases. For now, Scotiabank affirm their expectation of the hiking cycle ending at 8.5% in July, with the rate easing to 6% by the end of 2023, provided inflation moderates in H2-2022 and drops more rapidly in 2023.
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