Inflation in Colombia Completes One Year of Decline in March

Colombia’s inflation rate has been on a decline for a full year, now sitting at 7.36%. For March, inflation was recorded at 0.70%, a decrease of 0.37 percentage points from February’s data. This reduction continues a downward trend in prices that began twelve months ago after the country faced nearly two years of inflation increases. Compared to the same time last year, the current rate represents a nearly 6% fall in inflation.

A key factor contributing to the drop in the Consumer Price Index (CPI) in Colombia was the decrease in food prices. Even without including food, the CPI experienced a decline. This positive trend in inflation has led many analysts to predict that the Colombian central bank might further reduce interest rates.

The most inflationary sectors

Among the most inflationary points, the following sectors stand out: Education, with a 0.45% increase; Alcoholic Beverages and Tobacco, with 0.78%; Restaurant and Hotel Services, with 1.12%; Transportation, with 1.53%; Health, with 1.13%; Accommodation and Water, Electricity and Gas Services, with 0.88%.

Food prices, which weigh the most in the calculation of the indicator, rose by 0.75; clothing by 0.12%; information and communications decreased by 0.01%; and recreation and culture decreased by 0.54%.

Comparing this year’s March inflation rate of 7.26% with March 2023’s 13.34%, there’s a noticeable decrease, aligning with the government’s aim to close 2024 with a Consumer Price Index (CPI) near 5%. Achieving the broader goal set by both the government and the central bank to stabilize inflation at 3% by 2025 remains a significant challenge, indicating a continued effort is required to reach this target.

These data also bring relief to Colombia’s battered economy. On the one hand, the central bank last month lowered its inflation projection for this year to 5.4%, from a previous 5.9%, while increasing its economic growth forecast to 1.1%, from a previous 0.8%. Although the growth numbers are still low, they indicate a recovery, after a bad year, 2023.

Food and interest rates

When inflation peaked, the main driver of price increases was the food sector, which was experiencing a significant increase due to the sharp rise in agricultural input costs. This cost increase was related to problems in global logistics chains, as well as to the geopolitical situation, with Russia’s invasion of Ukraine being one of the main factors.

In this sense, the March 2024 figure is significant, bearing in mind that Easter vacations are usually a time of rising prices, especially in tourism and leisure services.

Another hopeful point in the short term is the chance that the central bank will decide to lower the interest rate, even more boldly. At its last meeting, in March, it opted for a 50 basis point decrease for the first time, which is a small relief for consumers and companies, which have greater access to credit. The reactivation of consumption, as well as the important construction sector, are the main hopes for a year that is expected to mean a slight recovery of the national economy.