Inflation in Colombia: agricultural sector poses new challenges to the cost of living

For several months we have been warning that we should not let our guard down with the cost of living in Colombia and it seems that the moment in which the downward trend of this indicator could be reversed is getting closer, or at least less That is what can be seen in the results that Dane has been presenting.

Although the specter of 13.3% that was experienced a little over a year ago has already been surpassed and inflationary pressures are increasingly lower, leading experts to project that it could remain above 5% at the end of this year, a report from the Anif Center for Economic Studies poses several challenges from the primary sector, especially in agriculture.

According to the experts in charge of this analysis, after closely monitoring the cost of living and the behavior of the prices of agricultural and mining products, although the downward trend continues, the reductions are increasingly smaller, which indicates that there are strong upward pressures.

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To say this, it starts from the Producer Price Index, which has a direct impact on inflation and indicates that for last April it had an annual variation of -1.48% compared to the same month of the previous year.

“This behavior responds to the fall in prices in mining goods such as coal (-28%) and oils obtained from bituminous minerals (-6.3%), as well as agricultural goods such as bananas (-35%) that in Together they subtracted 2.39 percentage points from the variation of the PPI,” he explains.

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Now, looking at things from another angle, Anif warns that “in a less optimistic tone, in monthly terms the IPP registered a variation of 1.12%, which represents a difference of 2.65 percentage points compared to the result of the same month in 2023 (-1.53%).”

This while adding that the manufacturing industry sector registered a contraction of 0.14%, which was not enough to counteract the effect of the variations in the mining and quarrying sectors with 5% and agriculture, livestock, forestry, hunting and fishing with 1.32%, and that goods for export registered a variation close to 2.9% while those produced for domestic consumption grew 0.6%.

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“The above reflects a heterogeneous effect in terms of production costs which could suggest a better behavior of external demand compared to the domestic market (…) it is important to highlight that the recent monthly variation is the largest so far in 2024 and of course, it is far from the negative behavior that The indicator recorded at the end of 2023,” he added.

With this they make it clear that although in the last year there has been a drop in the prices of some agricultural and mining goods, the recent monthly variation of the producer price index (PPI) indicates a significant increase, especially in agriculture, with products such as fresh fruits and bananas, which impact inflationary pressures that could resurface, affecting the cost of living.

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For Anif, the outlook in the near future is full of challenges, however, it also makes it clear that for the moment things are progressing well with regard to inflation, largely as an effect of the decisions that the Bank of the Republic has been taking to control this indicator.

“As for consumer prices, the news is positive. The annual variation of inflation was 7.16%, which takes the index to complete thirteen months of decline. Likewise, it is important to highlight the behavior of basic inflation (which excludes food and energy), which has remained on the same path for eleven consecutive months with a result of 6.86% annually,” he stated.

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Based on this, they add that the expectation of convergence of the CPI is maintained to the target range for 2025, leaving its projections for 2024 at 5.4% and 3.4% in 2025 and reaffirming confidence in the ability of the monetary authorities to preserve the purchasing power of the currency.

“Inflation at all levels was lower compared to last month and for April 2024, which also contributed to monthly low-income inflation being 0.58%, compared to high incomes, which registered a variation of 0.69%,” he added.

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In conclusion, for this economic study center things are going well so far and some important points are already being put on the table to review, not to generate alarm, but to look carefully. how any threat can be countered in the coming months.

“We draw attention to two particular points. The first, that the IPP registered the highest monthly variation so far in 2024. This signal could reflect some supply pressures that will need to be monitored. In addition, the monthly variation of food in the CPI once again took center stage and was the one with the greatest contribution to the monthly result for April. This may be due to some climatic effects that generate supply shocks, of which we still do not have greater clarity,” they concluded.

Finally, they indicated that the rainy season is about to begin. and the effects of the La Niña phenomenon will also translate into inflationary pressures, both in production and consumption, which must be taken into account.