Colombia risks three years without meeting inflation target
Jul 10, 2016 20:00:11 GMT -5
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Post by livinginmedellin on Jul 10, 2016 20:00:11 GMT -5
'There is a risk of three years without meeting the inflation target': Gustavo Cano Co-director of the Colombia Central Bank warns that recent increases in rates would be insufficient.
When many believed that inflation had peaked, with 8.2 percent per year recorded in May, the June data surprised, because the increases came to 8.6 percent.
The data make it clear that the problem is not only for food, and Carlos Gustavo Cano, one of the co-directors of the Bank of the Republic should ensure to keep a lid on prices, the issue is transient phenomena side supply and also because there is pressure from demand.
Therefore, besides the need to appease the expectations, not only justifies Cano hikes interest rates, but considers that what has been done so far may be insufficient.
For now, it looks difficult to achieve at the end of this year, down from 7 percent inflation, and stresses the risk that in 2017 are completed three consecutive years without fulfilling the goal.
What is the magnitude of the flood of price hikes against the objectives that the Bank of the Republic set?
The annual consumer inflation in June reached 8.6 percent, and has remained above the upper limit of the target range-of between two and four per cent for 17 consecutive months, and today already exceeds 115 percent.
But the Bank has responded to rising interest rates, which are supposed to affect demand, when it is said that the current inflation is driven by transient events by the supply side ...
Food inflation, 14.3 percent in the last 12 months climate-dominated factors, is the one that has marked the total. A supply shock to which in principle should not respond monetary policy, designed to control only demand. Except if inflation expectations are affected
However, even excluding food, inflation continued to rise 6.3 percent. Besides food, the items that had the highest inflation were health, education, transport and entertainment. Persist signs of excess demand.
That is, the problem has not been just by blows of El Niño and the dollar?
The non-tradable inflation (products that can only be marketed within the country and, therefore, their prices respond to domestic demand), excluding food and regulated (such as water or light), is 5 percent and the indicator best usually reveal whether or not inflationary pressures from the demand side
The average core inflation (excluding measurements very volatile prices such as food, or beyond the control of monetary policy as regulated prices), which also often reflects the dynamics of demand and supply shocks excludes, also continued to rise. It is at 6.5 percent. This is the most relevant indicator, next to the expectations, to set the monetary policy stance.
Then, there has been an outbreak of gains restricted to certain products ...
All relevant indicators of inflation are rising. Not only is the persistence of inflation, but the persistence of their increase, which shows that there are still excess demand
Clearly, the board of the Bank of the Republic has implemented an aggressive therapy, but inflation continued to accelerate. Whats Next?
The board has raised the intervention interest rate by 300 basis points from September 2015 until today: from 4.5 percent to 7.5 percent.
As inflation expectations remain high, I find it highly unlikely that the current stance of policy is sufficient to ensure the return of inflation to the target before the end of 2017, which was the commitment that the board took the explain the reasons why the goal at the end of 2016 will not be met when the annual inflation hardly would drop 7 percent.
If so, 2017 would be the third consecutive year of default of the goal, and the credibility of the monetary authority and its policy could be injured.
The board should rise in July once again the benchmark rate?
A new measure of expectations in this month could give more lights for future rate movements.
Reliefs in the second half
Among the members of the board of the Bank of the Republic there is the feeling that in the second half relief on inflation, after having peaked come.
In the minutes of the last meeting, on June 22, it is stated that "is expected in the second half impact of food prices and the depreciation begin to dilute, which together with monetary policy actions should lead inflation to the target range in 2017 ".
According to what was discussed at that meeting, the Issuer is perceived, based on the statistics available at that time, domestic demand and output growth continue to decelerate. These are precisely the foreseeable effects of rising interest rates that would show that progress is being made on the way to control the rising prices.
In this regard, the co-directors of the Bank said in the meeting that "despite strong shocks that have led to recent increases in inflation, previous increases in interest rates have had an effect in the expected direction in inflation expectations" .
The pressure is not just food
While the increased pressure in the 12-month inflation comes from food, in June introduced one of the two smaller increases in food since August last year.
The price increase was 0.51 percent in May after recorded 0.46 percent, showing no impact of the strike of truckers in June.
Even, there were notable declines in consumer prices as in oranges, 5.8 percent; other vegetables and fresh vegetables, 9.2 percent; or blackberries, 13.7 percent. In wholesale prices in June it was also noted normal behavior, with some products up and others down.
For example, in the month the value of the Creole potato was reduced, and the reason, interestingly, was the largest revenue cargo from Antioquia, Norte de Santander, Boyaca, Cundinamarca and Nariño, reports Information System Pricing and Supply Agricultural Sector (Sipsa).
Between increases in wholesale prices registered in the sixth month of the year by the Sipsa it is white because white onion decreased crop yields in Sogamoso, Chiquinquirá, Tunja and Sáchica (Boyacá) and Cundinamarca. It also raised sugar and, according to traders, due to the mills of the Valley produced less.
In parallel, in June it was lower wholesale prices pastusa brown potatoes, in 15 of the 23 markets where it is traded, by best in Cundinamarca, Boyacá, Santander and Norte de Santander. Rice also declined in 27 of the 31 markets where it is marketed, as well as the coastal cheese and red eggs.
The pressure to annual inflation has reached the highest level in 16 and a half years thus goes beyond food.
Among the products that have more expensive the total basket, for its rise in the last year and also the weight they have on household spending, with some foods are other housing-related and even fun.
Thus beef in 12 months rose 18.7 percent; electricity, 13.6 percent; potatoes, 65.7 percent; fun related services, 10.2 percent; banana, 39.9 percent, and gas, 19.7 percent.
See (in Spanish): www.eltiempo.com/economia/sectores/entrevista-con-carlos-gustavo-cano-codirector-del-banco-de-la-republica/16640719
When many believed that inflation had peaked, with 8.2 percent per year recorded in May, the June data surprised, because the increases came to 8.6 percent.
The data make it clear that the problem is not only for food, and Carlos Gustavo Cano, one of the co-directors of the Bank of the Republic should ensure to keep a lid on prices, the issue is transient phenomena side supply and also because there is pressure from demand.
Therefore, besides the need to appease the expectations, not only justifies Cano hikes interest rates, but considers that what has been done so far may be insufficient.
For now, it looks difficult to achieve at the end of this year, down from 7 percent inflation, and stresses the risk that in 2017 are completed three consecutive years without fulfilling the goal.
What is the magnitude of the flood of price hikes against the objectives that the Bank of the Republic set?
The annual consumer inflation in June reached 8.6 percent, and has remained above the upper limit of the target range-of between two and four per cent for 17 consecutive months, and today already exceeds 115 percent.
But the Bank has responded to rising interest rates, which are supposed to affect demand, when it is said that the current inflation is driven by transient events by the supply side ...
Food inflation, 14.3 percent in the last 12 months climate-dominated factors, is the one that has marked the total. A supply shock to which in principle should not respond monetary policy, designed to control only demand. Except if inflation expectations are affected
However, even excluding food, inflation continued to rise 6.3 percent. Besides food, the items that had the highest inflation were health, education, transport and entertainment. Persist signs of excess demand.
That is, the problem has not been just by blows of El Niño and the dollar?
The non-tradable inflation (products that can only be marketed within the country and, therefore, their prices respond to domestic demand), excluding food and regulated (such as water or light), is 5 percent and the indicator best usually reveal whether or not inflationary pressures from the demand side
The average core inflation (excluding measurements very volatile prices such as food, or beyond the control of monetary policy as regulated prices), which also often reflects the dynamics of demand and supply shocks excludes, also continued to rise. It is at 6.5 percent. This is the most relevant indicator, next to the expectations, to set the monetary policy stance.
Then, there has been an outbreak of gains restricted to certain products ...
All relevant indicators of inflation are rising. Not only is the persistence of inflation, but the persistence of their increase, which shows that there are still excess demand
Clearly, the board of the Bank of the Republic has implemented an aggressive therapy, but inflation continued to accelerate. Whats Next?
The board has raised the intervention interest rate by 300 basis points from September 2015 until today: from 4.5 percent to 7.5 percent.
As inflation expectations remain high, I find it highly unlikely that the current stance of policy is sufficient to ensure the return of inflation to the target before the end of 2017, which was the commitment that the board took the explain the reasons why the goal at the end of 2016 will not be met when the annual inflation hardly would drop 7 percent.
If so, 2017 would be the third consecutive year of default of the goal, and the credibility of the monetary authority and its policy could be injured.
The board should rise in July once again the benchmark rate?
A new measure of expectations in this month could give more lights for future rate movements.
Reliefs in the second half
Among the members of the board of the Bank of the Republic there is the feeling that in the second half relief on inflation, after having peaked come.
In the minutes of the last meeting, on June 22, it is stated that "is expected in the second half impact of food prices and the depreciation begin to dilute, which together with monetary policy actions should lead inflation to the target range in 2017 ".
According to what was discussed at that meeting, the Issuer is perceived, based on the statistics available at that time, domestic demand and output growth continue to decelerate. These are precisely the foreseeable effects of rising interest rates that would show that progress is being made on the way to control the rising prices.
In this regard, the co-directors of the Bank said in the meeting that "despite strong shocks that have led to recent increases in inflation, previous increases in interest rates have had an effect in the expected direction in inflation expectations" .
The pressure is not just food
While the increased pressure in the 12-month inflation comes from food, in June introduced one of the two smaller increases in food since August last year.
The price increase was 0.51 percent in May after recorded 0.46 percent, showing no impact of the strike of truckers in June.
Even, there were notable declines in consumer prices as in oranges, 5.8 percent; other vegetables and fresh vegetables, 9.2 percent; or blackberries, 13.7 percent. In wholesale prices in June it was also noted normal behavior, with some products up and others down.
For example, in the month the value of the Creole potato was reduced, and the reason, interestingly, was the largest revenue cargo from Antioquia, Norte de Santander, Boyaca, Cundinamarca and Nariño, reports Information System Pricing and Supply Agricultural Sector (Sipsa).
Between increases in wholesale prices registered in the sixth month of the year by the Sipsa it is white because white onion decreased crop yields in Sogamoso, Chiquinquirá, Tunja and Sáchica (Boyacá) and Cundinamarca. It also raised sugar and, according to traders, due to the mills of the Valley produced less.
In parallel, in June it was lower wholesale prices pastusa brown potatoes, in 15 of the 23 markets where it is traded, by best in Cundinamarca, Boyacá, Santander and Norte de Santander. Rice also declined in 27 of the 31 markets where it is marketed, as well as the coastal cheese and red eggs.
The pressure to annual inflation has reached the highest level in 16 and a half years thus goes beyond food.
Among the products that have more expensive the total basket, for its rise in the last year and also the weight they have on household spending, with some foods are other housing-related and even fun.
Thus beef in 12 months rose 18.7 percent; electricity, 13.6 percent; potatoes, 65.7 percent; fun related services, 10.2 percent; banana, 39.9 percent, and gas, 19.7 percent.
See (in Spanish): www.eltiempo.com/economia/sectores/entrevista-con-carlos-gustavo-cano-codirector-del-banco-de-la-republica/16640719