Colombia Inflation Breaches Upper Target for 1st Time Since 2017

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(Bloomberg) — Colombian inflation breached the upper limit of its target range for the first time since 2017, meaning that every major economy in Latin America is now missing its inflation goal. 

Consumer prices rose 4.44% in August from a year earlier, the statistics agency said Saturday, above the central bank’s target of 3% plus or minus one percentage point. The result was higher than the 4.2% median forecast of analysts surveyed by Bloomberg. 

In recent months, central banks across the region have tightened monetary policy as inflation accelerated beyond its target in Brazil, Mexico, Chile and Peru. Chile shocked traders this week with its biggest interest rate rise in two decades, while Colombia’s policy makers are forecast to lift borrowing costs this month for the first time in 5 years. 

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Read More: Chile Pivots to Aggressive Tightening After ‘Drastic’ Hike

“Overall, monetary policy is way too accommodative in almost every country for the intensity of the inflation pressures, and the V-shaped recovery as the virus risk recedes,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. “If Colombia does not start to lift rates they may well find themselves behind the curve.”

Ramos expects Banco de la Republica to raise its policy rate to at least 2.5% by the end of the year, from 1.75% currently. 

As economies eased measures to curb the pandemic, there was pent up demand for services such as airline tickets and hotels, Ramos said. They have also been hit by higher food and energy costs, as well as some industrial prices, he added. 

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“The million dollar question is how much of world inflation is temporary and how much is more permanent,” central bank co-director Mauricio Villamizar said earlier this week, in reply to written questions.

In July, Villamizar’s fellow board member Roberto Steiner said that expectations for core inflation, which aims to track underlying trends by excluding volatile food and energy prices, are a key metric in deciding when to tighten policy. 

Excluding food prices, the index rose 0.32% in August from the previous month and 3.11% from a year ago. 

Inflation is also now above target in some other major emerging markets such as Russia and Poland, though remains on target in India, China, South Africa and Indonesia. 

©2021 Bloomberg L.P.

Bloomberg.com

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