By Nelson Bocanegra
BOGOTA (Reuters) – Analysts’ Colombia inflation expectations for this year fell dramatically compared with last month amid much-reduced consumption because of the coronavirus pandemic, a Reuters survey showed on Thursday.
The median estimate, which now stands at 2.21% compared with the 2.74% predicted last month, is even further from the central bank’s 3% long-term goal and would give policymakers more space to continue interest rate cuts.
If the figure meets analysts’ outlook, if would be the lowest consumer price increase since 2013, when inflation was 1.94%.
Latin America’s fourth-largest economy is being battered by low oil prices and a nearly four-month-long coronavirus quarantine. Urban unemployment more than doubled to 24.5% in May.
The government has lowered gas prices, frozen rent rises, canceled value added tax on certain goods and widened welfare payments in a bid to counteract the effects of the pandemic.
Aggregate demand “is cool but will cool a bit more,” said Wilson Tovar, head economist at Acciones y Valores brokerage, who also cited high unemployment as a reason why consumer price increases could even descend to 1.85%.
Analysts said prices in June will have fallen 0.09%, taking 12-month inflation to 2.49% from the 2.85% reported in May.
Inflation estimates for 2021 remained at 3%.
Low inflation will allow the central bank to continue rate cuts, analysts said. The seven-member board has slashed borrowing costs by 175 basis points in recent months to a record low of 2.5%.
“This low inflation is what we see as an argument for lower interest rates, the market expectations in general help a lot to open space for the central bank to continue to lower them,” said Camilo Perez, head of economic investigation at Banco de Bogota.
The finance ministry predicts Colombia’s economy will contract 5.5% this year.
(Reporting by Nelson Bocanegra; Writing by Julia Symmes Cobb; Editing by Jonathan Oatis)
