Annual Inflation in Colombia Hit Multi-Year High in March

Colombia Inflation March 2015

With a strong dollar continuing to impact the costs of imported food and other products as well as a lower supply of some foods because of the weather, the annual inflation rate was 4.56% in Colombia in March, which is the highest annual increase in the consumer prices index (CPI) seen in several years. But at the same time as inflation has increased in terms of pesos in Colombia, the strong U.S. dollar recently has continued to make costs in terms of U.S. dollars actually much cheaper.

According to a recent report by Colombia’s statistics agency, Departamento Administrativo Nacional de Estadística (DANE), the annual inflation rate in Colombia hit 4.56% in March. In comparison, in March 2013, the rolling annual inflation rate was 1.91% and in March 2014 it was 2.51%. The annual inflation rate of 4.36% experienced in February 2015 and 4.56% experienced in March 2015 means that for two months in 2015 inflation has exceeded the inflation goal of 2-4% set by the Bank of the Republic in Colombia.

In Medellín, inflation registered a 0.68% monthly increase in March, which was higher than the 0.59% monthly increase seen across all of Colombia. The monthly inflation increase in March was higher in several cities in Colombia along the coast including Cartagena, Santa Marta and Barranquilla than was experienced in Medellín.

What is Driving the Inflation Increase in Colombia?

According to DANE, the biggest consumer price increases are being seen in the food category, with annual inflation in food prices hitting 7.37% in February in Colombia. In Colombia’s CPI, food represents between 25% and 36% weighting in the basket of goods index, depending on the city (Medellín is 25.1%).

Some food items that have contributed the most to food price inflation in Colombia include cereals and bread product prices up 15.88% Y/Y due to many cereals being imported; as well as vegetables up 21.13% Y/Y, rice up 36.58% Y/Y, beans up 43.61% Y/Y and potatoes up 71.77% Y/Y.

However, food inflation figures are averages for a basket of goods. Your individual situation may vary and you can substitute items and change your shopping behaviors. For example, my grocery costs in Medellín have actually dropped substantially over the past year in terms of pesos as I have been shopping more of the sales at local grocery stores. In addition, I started shopping at the new PriceSmart warehouse store that opened in Medellín in December, which sells grocery items in large, wholesale size packages, with good prices.

The Bottom Line

The Economic Research Group at Bancolombia recently disclosed that it is expecting inflation in Colombia to start trending lower and close out the year at less than 4%, within the range of 2-4%, which is the inflation goal for Colombia set by the Bank of the Republic in Colombia.

Inflation has picked up in Colombia lately in terms of Colombian pesos due to a stronger dollar impacting the costs of imported food and other products as well as lower supply of some foods because of the weather. However, at the same time, these consumer costs have actually decreased in terms of U.S. dollars over the past year, due to the strength of the U.S. dollar over the past several months. So if you receive income in U.S. dollars, the recent inflation seen in Colombia in terms of pesos wouldn’t impact you.

The strong dollar has also made Medellín a discount retirement location with a real estate buying opportunity.

Colombia’s inflation has been relatively moderate over the past decade with a stable economy; the country experienced annual inflation above 6% only twice over the past 10 years – in 2008 and 2009 during the global financial crisis.

Even though the rolling annual inflation rate in Colombia exceeded 4% in February and March, this is still better than many other countries in Latin America. For example in Brazil in March this year, annual inflation hit 8.13%, which is the highest level seen in nearly 10 years. Latin America economies with major problems are experiencing much higher inflation; Argentina had annual inflation of 16.54% in March and annual inflation has been exceeding 60% in Venezuela.

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