“It’s not enough for me”, “everything is very expensive”, “I’m spending twice as much”. These types of phrases are heard daily in family conversations, with friends and at work, due to the high increase in inflation in Colombia.
At the beginning of January, the National Administrative Department of Statistics DANE revealed that inflation in this country reached 13.12% in 2022, a figure that represents a high increase compared to 5.62% a year ago, and which is only similar to that reached in March 1999, with 13.51%.
This is how some products from the family basket, tickets, transportation, clothing, gasoline, among others, have increased in price.
The TransUnion Company revealed in its most recent ‘Consumer Pulse’ study for the fourth quarter of 2022 that 74% of Colombians surveyed say they are extremely or very concerned about inflation.
Kevin Murcia, for example, told the voice of america that the pound of potatoes that he bought for 100-200 pesos (0.04 US cents) three or four years ago “today is already worth 2,000 pesos (0.50 US cents).”
“It is evident that the standard of living in Colombia is getting lower every time due to the loss of purchasing power for us as Colombians,” he added.
Also read: Why did inflation punish Latin America unequally this 2022?
A situation that also perceives Carlos Rojas, a citizen who makes a living shining shoes in the center of Bogotá. “I have had to work more, I had to reduce the daily, because this is very expensive, there is no where to choose,” he said.
“What I bought before, now I have to buy half. Because it is very expensive. Everything is very expensive. They raised everything, ”she expressed to the VOA.
External and internal agents
Colombia has not been immune to an inflationary phenomenon that the world is experiencing and that in this country “does not seem to have a ceiling,” says Camillo Herrera, founder of the Raddar consultancy, because what is rising in price the most is food, which they represent “close to 32% of household spending.”
Food and non-alcoholic beverages had the highest inflation in Colombia, with 27.81%, according to DANE, followed by restaurants and hotels (18.54%), transportation (11.59%), and clothing and footwear (11.22%), which had a very high peak in December 2022. During the first months of 2023, the increases will increase in services, rents, health and education, says Herrera.
The situation worries Marta Rincón, who told the VOA that has seen a rise in prices since last year, but since January 1, its outlook worsened.
“I went to market and the family basket went up super terrible. We can’t help but eat eggs, we can’t have access to a piece of meat because it’s super expensive… I used to do weekly with a value and now I had to double it because many of us are really affected”, affirms the lawyer, with a bit of indignation, Well, he also says that before he used to travel by car, and that today he doesn’t have enough for gasoline and he must use public transportation or walk.
Economists and experts explained to the voice of america that the world is interconnected and, as Colombia is a small economy, “it is very vulnerable to big market changes,” said Herrera.
The confinement caused by the pandemic, which broke global supply and logistics chains worldwide, Russia’s invasion of Ukraine, which affected the food supply chain in many of the countries, are also factors that have influenced the price increase. Likewise, the low economic growth forecast for The United States will hit the Latin American economies.
Javier Hernández, director of “Invest to win”, a financial education website, explained to the VOA that another component that affects prices is that of fossil fuels, particularly oil and its derivatives, such as gasoline, which “has been going up for absolutely all of last year and is a cyclical issue.”
For the engineer Hernández, investor and international speaker, the situation is also related to the election of Gustavo Petro as president. It is the first time that a left-wing president has been elected and “many of the investors get nervous, stop projects”, especially when changes are glimpsed with oil exploitation.
Another factor that has influenced recently, analysts say, is the depreciation of the Colombian peso against the dollar by more than 25% of its value.
What to expect?
The Banco de la República has a goal of reaching an inflation rate of 7% in 2023. It is then expected that the bank will raise its interest rates and that inflation will tend to fall, which translates into that the credits of housing, credit card rates and free investment loans also increase.
The Foundation for Higher Education and Development, Fedesarrollo, expects that January of this year will register an inflation of 13.36%.
For the founder of Raddar, since 2019 economists have lost the ability to project economic variables, due to unexpected factors that are occurring in the world. But he affirms that, as a research center, they see that inflation could reach a ceiling in March or April 2023 and that in the second semester it begins to subside to, at the end of the year, be close to 7%, if it is not present unexpected phenomena.
government measures
The temporary reduction of tariffs, support for small producers to purchase agricultural inputs and financial instruments to support this sector are some of the government measures to mitigate the rise in food prices.
Regarding energy prices, the government sought an agreement with companies in the sector to adopt regulations to stabilize energy rates as of November 2022.
According to the Ministry of Finance, an identification was made of activities, goods and services that could be de-indexed from the minimum wage in the sectors of agriculture, education, public services, transportation, housing, etc. And there have been gradual increases in the prices of gasoline and ACPM.
In addition, the portfolio says, a subsidy for mothers who are heads of households equivalent to 500,000 pesos per month (a little more than 100 dollars) was approved.
A third measure has to do with the increase in wages. “To the extent that they are going to increase, particularly the minimum wage, which increases by 16 percent in the face of inflation of 13.12 percent last year, it will allow households to have greater purchasing power,” he explained. Herrera. This also generates an increase in costs in companies that will cause prices to rise.
For the Raddar economist, the measures that have been implemented have managed to work on certain issues, but not on all, because the situation does not depend on a single reason and the effects, not being short-term, cannot yet be measured.
According to Hernández, the government’s measures “are necessary, but we must go further”, because it is necessary for the citizen to educate himself to respond adequately to this type of situation.
In Latin America, inflation is an issue that worries all nations. One of the most complex cases is that of Argentina, with inflation of 94.8%, and Venezuela, which closed last year with inflation of 305.7%. In Chile, it reached 13.3%. Among the countries that are located below Colombia are Peru (8.56), Uruguay (8.29%), Paraguay (8.1%) and Mexico (7.82%), some of them with inflation figures record.
However, the Economic Commission for Latin America and the Caribbean (ECLAC) stated in early January that regional inflation will drop this year.
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