Even though he Bank of the Republic maintains its aggressive interest rate adjustment plan, from October 2021 to date it has raised them by 12 percentage points to 12.75 percent trying to contain the escalation of inflation, which closed last year on 13, 12 percent, the cost of living for Colombians will continue to rise, at least in the first three or four months of 2023.
(Also read: Banco de la República completes its 12th rate hike and takes it to 12.75%)
According to estimates of the analysts of the bancolombia group, in January the consumer price index (CPI) would have presented a monthly variation of 1.85 percent, which could have brought the annual one to a new record in the present follow-up of 13.34 percent annual.
They are not the only ones who are seeing this scenario in the country by the beginning of 2023. In Fedevelopment, the projections point to an annual variation in the cost of living of 13.36 percent, while the majority of analysts consulted by the Issuer in its monthly survey of expectations in January will have marked a monthly inflation of between 1.5 and 1.9 percent.
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The expectation to know at what level inflation will reach and what is the variation in the cost of living of Colombians in the first month of the year will be cleared this Saturday when the National Administrative Department of Statistics (Dane) reveal the final CPI data.
The rise in the cost of living, number 27 in a series and the highest of this century, is registered despite the announcement of several measures announced by the National Government last year to stop the rise that the cost of living has been presenting in Colombia , apart from the adjustment of interest rates that has been reduced by the Banco de la República itself.
Among the departures announced at the time by the President Gustavo Petro To curb this escalation were the subsidies for the purchase of fertilizers and other key inputs for rural producers, the temporary reduction of tariffs, financial support for the agricultural sector, with which they sought to reduce the impact of production on the cost of food, one of the factors that hits the pocket of Colombians the most.
Other measures aimed at avoiding the increase in energy rates, for which he announced a change in the rate formula, advancing in agrarian reform and even carrying out markets in the poorest neighborhoods.
food and energy
Despite the fact that several of these proposals have been underway for several months, their effects have not yet been seen and, on the contrary, the cost of living in Colombia continues to rise.
Parachute Jorge Bedoya, president of the Colombian Farmers Society (SAC)Without a doubt, the subsidies for the purchase of fertilizers and other raw materials, as well as the lower tariffs, have had an impact on the production costs of the sector, since without these benefits it is clear that the cost of food would have been higher and its impact on inflation too.
The union leader said that the effects of measures like these, however, are longer-term, but in the same way, the agricultural sector needs other urgent measures that allow farmers to alleviate other costs, such as a broad program of improvement of tertiary roads in the country that will allow the improvement of the entire logistics issue of food output from the farms to the collection centers in the cities.
Support for rural producers was among the first measures adopted by the national government last year and perhaps partly explains the results of this line in January.
According to Grupo Bancolombia analysts, monthly food inflation could show a marked slowdown up just under 2 percent in the first month of 2023. Based on official information, they estimate in the entity «a variation between December and January of 1.48 percent for this category of food. This
it would respond to more moderate increases in protein, rice and some fresh fruits, as well as falls in carrots, vegetables, onions, cassava and eggs”, they point out.
The moderation of the rains and the slower increase in agricultural costs would also contribute to this, which would lead to annual food inflation going from 27.8 percent in December to 25 percent last January.
Regarding the reduction in energy costs. while the Superintendence of Public Services, He pointed out that between September and November there was a reduction of 2.6 percent, the figures from the Ministry of Mines and Energy indicated that up to November an average of 4.2 percent had been reached in the national territory.
long term measures
But what has been the effect of the other stockings? The analysts’ consensus indicates that several of the proposals put forward by the Government in its effort to contain the high cost of living do not have immediate effects on the economy, but are longer-term issues and only their results will be known later.
Munir Jalil, Chief Economist for the Andean Region of BTG PactualIt is from what he considers that these measures help, but «miracles cannot be expected from them.»
Anything that can be done to control cost increases and decouple prices from the minimum wage is welcome, says the economist, who insists that they cannot be expected to be highly effective measures to change the trend of inflation in the short term. «Fighting inflation is like running a marathon: you need a strategy and not give up.»
Parachute Luis Fernando Mejía, director of the center for economic studies FedesarrolloIt is clear that there are factors that have helped to mitigate the inflationary problem, such as the elements related to fertilizer subsidies, the reductions in tariffs on imported goods used in agricultural production processes.
However, I warn that what is happening today, to a large extent, has to do with problems on the demand side, in particular, economic growth well above its potential, coupled with an external imbalance, a deficit in current account that can reach 6 percent of GDP and a fiscal deficit that continues for the third consecutive year above 7 percent of GDP.
«The Government must continue with its measures related to fertilizer subsidies and tariff reductions, but inflation problems will continue to the extent that the pressures continue on the side of aggregate demand. Therefore, inflation control is the main challenge for this 2023 and it has to do with correcting those imbalances of the fiscal adjustment and the external imbalance,» says Mejía.
For Jalil, this fight against inflation must begin with the reinforcement of the message of the Bank of the Republic in the sense that there are concrete actions (increases in interest rates) so that it is clear that there is a monetary authority committed to making the inflation lower.
He says that it is also necessary for the Government to commit to this discourse and stop defending that inflation is a supply phenomenon. «Of course there are both supply and demand factors, but on the margin, what has triggered inflation is the good economic performance that we brought from 2022,» he pointed out.
