After nearly two years in which prices had been rising, in the last two months the Consumer Price Index (CPI) finally began to decline. The annual variation for May was located at 12.36%, and confirmed the downward trend, which the market expects to consolidate in the second semester.
Behind this, according to experts, there are two phenomena. On the one hand, the contraction in demand thanks to the process of interest rate increases that the Bank of the Republic has been promoting since the end of 2021as well as the moderation in the costs of the producers, which are evidenced in the decrease of the Producer Price Index (IPP), which for May already registered a variation of -1.43% in annual terms.
“Much of the drop in inflation is a base effect, we are leveling out compared to last year’s prices, which rose a lot. Costs stopped growing, and the international prices of inputs have fallen, which allows businessmen to not have such strong pressure, and that helps to prevent prices from rising, but I would also think that interest rates at this time are not They are a key factor.”explains Camilo Herrera, director of the Raddar firm.
According to the expert, it is important to keep in mind that costs grew much more than priceswhich means that producers still have problems in their cost structures and profit margins. In addition, it points out that the PPI trend began to reverse about a year ago while inflation changed its trend two months ago, a difference of almost 12 months.
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“The brake on inflation is not occurring due to a drop in prices, or lower prices, but rather due to lower growth in costs,” assures Herrera.
Similarly, the expert believes that rates “still have a long way to go to really affect the market,” but it has been seen that households reduced their level of purchase.
“The fall in bank rates will be faster than that of the Issuer, since this fall is not only a function of usury rates, but also of market conditions”asserts the expert.
According to José Ignacio López, director of economic research at Corficolombiana, it is complex to break down this effect on inflation between the supply shock of inputs, and also the fall in demand, despite the fact that the academy has tried to do some analysis.
“On the input side, we are already seeing a significant correction. In dollars, global PPIs are in deflation, falling, which has implied disinflation in many jurisdictions. In Latin America we have seen surprises recently, in which inflation is lower than what analysts expect, we have seen it in Colombia”indicated the economist.
As Lopez explains, just as there was a global component in inflation when prices roseis also on the decline of the CPI.
(See: Transportation and rentals will continue to put pressure on inflation)
“When we look at the dynamics between consumption and credit, we also notice a slowdown in some segments, as well as the effects of interest rates on aggregate demand, so there would also be an effect on inflation. In terms of fees, I would think this level is restrictive enough.”said.
According to the Corficolombiana executive, there is a consensus among analysts as to how rates should stay putbut the question arises about the speed at which inflation can fall, due to shocks such as the increase in gasoline.
“The discussion is not whether there is an increase in rates or not, because they will surely be quiet, but the question is the space that the Banco de la República will have towards the end of the year to lower rates”said.
On the other hand, Luis Fernando Mejía, the executive director of the Fedesarrollo study center, assured that both factors have had an impact on the reduction of inflation data in annual terms.
(See: Inflation: Food fell for the first time since June 2021)
“On the one hand, the impact of the increase in interest rates has slowed down the growth of demand and, on the other hand, the reduction of the effects of supply shocks, including the drop in commodity prices and the drop in costs. of transport, which had such an impact in the post-pandemic”explained the economist.
LAURA LUCIA BECERRA ELEJALDE
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