Colombia inflation surprises on the upside as food prices beat expectations

Consumer prices in Colombia surprise markets on the upside as food prices rose sharply higher than expectations during the month of June. To a lesser extent, electricity tariffs and a slower deceleration in tradable inflation also contributed to this result.

June inflation in Colombia surprised at 0.48 percent m/m (8.60 percent y/y) due to a higher-than-expected rise in food prices. A Bloomberg poll had forecast a rise of 0.25 percent m/m. core inflation had risen 6.55 percent in May y/y from 6.69 percent and expectations embedded in public debt bonds for 2, 3 and 5 years eased to 4.0 percent and 4.5 percent from 4.3 percent and 4.7 percent in May.

"We expect inflation of 6.2 percent at the end of 2016 but with an upside bias," BBVA Research reported in its latest note.

Moreover, in the near term, further corrections in perishable food inflation and a slowdown in utility prices are expected to arrive. However, a slow pace of decline is expected in tradable inflation, which keeps the forecast with an upward bias.

The central bank of Colombia targets inflation at around 3.0 percent and Colombia’s government earlier this month raised its inflation forecast for this year to 6.5 percent.

Meanwhile, Colombia’s economy has been slowed by low oil and commodity prices with the first quarter's growth (y-o-y) of 2.5 percent down from 3.4 percent reported in the previous quarter as domestic demand slowed.