Inflation in Colombia Hits 12-Month High in February

With a strong dollar impacting the costs of imported food and products as well as lower supply of some foods because of dry weather, the monthly inflation in Colombia was 1.15% in February, which is the highest monthly increase in the consumer prices index (CPI) seen in Colombia in the past 12 months. But at the same time as inflation has increased in terms of pesos in Colombia, the strong U.S. dollar has made costs in terms of U.S. dollars actually much cheaper.

According Colombia’s statistics agency, Departamento Administrativo Nacional de Estadística (DANE), the annual inflation rate in Colombia hit 4.36% in February, which is the highest annual inflation rate experienced in Colombia in February seen since 2009. In February 2013, the rolling annual inflation rate in comparison was 2.32%. The annual inflation rate of 4.36% experienced in February now exceeds the inflation goal of 2-4% set by the Bank of the Republic in Colombia.

In Medellín, inflation registered a 0.81% monthly increase in February, which was lower than the 1.15% monthly increase seen across all of Colombia. The monthly inflation increase in February was higher in most other cities in Colombia including Bogotá, Cartagena, Cali and Santa Marta 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 6.77% in February in Colombia. In Colombia’s CPI, food represents between 25% and 36% weighting in the 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 breads prices up 12.89% Y/Y due to many cereals being imported; as well as rice up 29.98% Y/Y, tomatoes up 25.18% Y/Y and potatoes up 16.72% with production down due to dry weather.

However, food inflation figures are averages of a basket of goods. Your individual situation may vary. 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

Inflation has picked up a bit in Colombia in terms of Colombian pesos due to a strong dollar impacting the costs of imported food and products as well as the lower supply of some foods because of dry 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 few months. So if you receive income in U.S. dollars, the recent inflation seen in Colombia wouldn’t impact you.

The strong dollar has also made for a real estate buying opportunity in Colombia, with Colombian Real Estate perhaps becoming the cheapest in the Americas.

Colombia’s inflation has been relatively moderate over the past decade with a stable economy; the country experienced annual inflation in February 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, this is still better than many other countries in Latin America. For example in Brazil in February, annual inflation hit 7.7%, the highest level in nearly 10 years. Latin America economies with major problems are experienced much higher inflation; estimates indicate that Argentina has been experiencing inflation approaching 40% and inflation exceeded 60% in Venezuela last year.

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