Colombia CPI seen easing this year, rising next on tax reform doubts: Reuters poll

By Nelson Bocanegra

BOGOTA (Reuters) – Colombia’s inflation will likely ease faster than expected this year after a surprise dip in food prices, but forecasts for 2019 have already started to pick up amid uncertainty over the impact of planned tax changes on prices, a Reuters poll showed on Friday.

The survey of 19 analysts showed inflation expectations for 2018 slipped to 3.24 percent from 3.35 percent in the July poll and closer to the central bank’s target of 3 percent. Monthly inflation contracted 0.13 percent in July.

If economists’ forecasts prove true, the full year inflation level would be well below the 4.09 percent price rise at the end of 2017.

In August alone, consumer prices are expected to rise 0.11 percent compared with 0.14 percent a year before, bringing accumulated 12-month inflation to 3.10 percent.

But inflation expectations for next year registered a slight increase to 3.30 percent, up from the 3.24 percent reported in last month’s poll, when they had shown a decline.

The change in the trend came after new Finance Minister Alberto Carrasquilla floated the idea that all products in the basket of basic foods could be taxed as part of a tax reform that will go to Congress.

“It’s not clear if this trend will continue because if proposals are approved, like taxing all products in the family basket or increasing the minimum wage, it’s likely expectations will begin to increase,” said Andres Naveros, analyst of the Bancoldex Group.

Expectations for economic growth this year increased to 2.62 percent from 2.55 percent in the July survey, and 2019 GDP forecasts rose to 3.20 percent from 3 percent in the last poll, growth that would speed up inflation.

The poll also showed that analysts expect the central bank to keep its benchmark interest rate unchanged at the current 4.25 percent at least until the first quarter of next year.

According to the survey, borrowing costs would rise to 4.75 percent by the end of 2019.

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