The fight against the high cost of living in Colombia is still expected to be slow. After a 15-month streak of de-escalation, the June data shows a marginal rise in inflation: 7.18% annually, 0.2% more than in May. This is a result in line with the calculations of some analysts. To find its determinants, it is enough to review the behavior of rent prices, some foods and basic services such as electricity. The results, published on Monday afternoon by the National Administrative Department of Statistics (DANE), will serve as a mirror for those responsible for the Bank of the Republic, focused on de-escalating the rate to up to 5.3% by the end of the year.
The deflation process had already sent out anomalous signals in April and May, when the needle was stuck for two consecutive months at 7.16%. The former director of DANE, now a Bogotá councillor, Juan Daniel Oviedo, states in a pedagogical tone that the results denote a slowdown in the pace at which prices had been growing: “The adjustment path with which we were achieving a slowdown in the speed of the increase in the cost of living has been broken.” He says this to dispel the widespread belief that downward movements in the curve have an impact on the lowering of water or fruit bills in the supermarket.
The big surprise in the results of the last three months is the evolution of food, whose prices had temporarily moderated. But the climatic effects, with the droughts at the end of 2023 and the beginning of this year, have again spurred the price of potatoes by a worrying 64% year-on-year. Onions also rose by 24.10% and in the field of ultra-processed foods, chocolate and other derived products rose by 45.10% year-on-year.
The explanation for the rise in the price of confectionery and other sweets such as biscuits and jellies is based on the impact of the so-called “healthy” tax, which since October of last year imposed a progressive tax of up to 10% on producers of a variety of ultra-processed foods. Now the biggest concern, looking ahead to the second half of the year, is the excessive rainfall and flooding that have been announced with the arrival of the “La Niña” phenomenon. “It is a complex alert because we are going to need more fertilizers in the fields, which we mostly import from Russia, Ukraine and Canada,” Oviedo explains.
The increase in the price of maritime transport, which fluctuates throughout the year and is subject to geopolitical movements, also foreshadows an increase in inputs for the Colombian countryside. Sergio Olarte, chief economist at ScotiaBank Colpatria, recalls that the food segment, in monthly terms, gave a respite last year: “But this year inflation in that division has risen, from 2% three months ago, to a little over 5%. Going forward, in any case, we do not see food putting significant upward pressure.”
Everything will depend, to a large extent, on the vagaries of the weather and unforeseen events at international ports. The good news, Olarte concludes, is that the base inflation, an indicator highly sought after by economists because it does not include fresh food or energy due to their volatility, has continued to drop step by step until it is now at 6%: “There is a very gradual trend that allows us to anticipate that we will end the year with an inflation rate between 5.5% and 6%.”
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Another chapter of this story is focused on the line that includes “housing, water, electricity, gas and other fuels”, which for the sixth month was the one that had the most weight, contributing 2.81 points to total inflation. Andrea Ríos, head of macroeconomic studies at the Anif think tank, points out that when breaking down the data, the cost of the electricity tariff has been the determining factor, with special incidence in cities such as Armenia, Tunja and Ibagué: “All of these cities have had variations above 2% per month.”
It is already part of the daily debate that something is wrong with electricity bills in Colombia. If at the beginning of the year the increase in prices was explained by the costs of using coal-fired thermal generators to complement the work of the reservoirs during the dry season, now there seem to be deeper management problems that have not been resolved. The worst part has been borne, in general terms, by the inhabitants of the Caribbean coast, where the use of air conditioning, refrigerators and other cooling devices have led to disproportionate increases.
The latest major concern for analysts revolves around the price of rents. Liz Londoño, an economist at the EAFIT University in Medellín, recalls that in this case one of the vectors to explain the situation has to do with the annual adjustment to rental prices, which is established according to the inflation rate of the previous year. This means that this 2024 the increase has been 9.28%. Francisco Paillie, regional director of the American real estate agency RE/MAX, adds that this is an issue nested in the rise in mortgage loans: “Sales have dropped and many people have gone out to look for rentals. This has put pressure on prices due to a logic of supply and demand.”
All this flood of numbers, concludes Juan Daniel Oviedo, has a psychological effect and is clearly reflected in the complaints about the rise in prices. currentsthose cheap lunches that have become a daily staple on the streets of Colombia: “The increase in the prices of empanadas, buñuelos, arepas and chicken pie absorb a lot of the impact in this situation because the increase in electricity, the minimum wage and home gas means that food prepared outside the home is sold for much more.”
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