The International Monetary Fund raised alarm bells about the worrying inflation in Colombia, it would be almost 7% by the end of 2022

The International Monetary Fund (IMF), through experts Maximiliano Appendino, Ilan Goldfajn and Samuel Pienknagura, indicated that “inflation has recorded the highest levels in the last 15 years in the main Latin American economies, having suffered two major shocks: the effects of the pandemic, and those of the war in Russia and Ukraine”.

And they noted that, for example, in economies such as Brazil, Chile, Colombia, Mexico and Peru, inflation accelerated in 2021. “Initially, the increase in inflation was driven by rising food and energy prices, but it became wider as a result of the inertia of monetary policy and wage indexation practices (contracts whose conditions are automatically adjusted to inflation), as well as the strong recovery of demand, first for goods, but later also for services,” explained the IMF.

In addition, they said that due to the current war situation between Ukraine and Russia, it has generated an increase in oil prices of 10 percentage points, which would generate 0.2 percentage points of increase in inflation, this is reflected in the rise in world food prices of 10 percentage points, i.e. 0.9 percentage points.

Similarly, the IMF highlights that “Colombia's economic recovery in 2021 was one of the most dynamic in the region. After a strong economic upturn last year, Colombia's economic momentum is expected to continue in 2022. For this year, growth is expected to exceed potential at around 5¾ per cent, driven by strong household consumption and continued recovery in investment and exports.”

He added that “thanks to a still accommodative monetary orientation, the output gap is projected to close in the first half of 2022. In the medium term, GDP growth is expected to converge towards its potential level of approximately 3½ per cent. The projected rise in prices of major commodity exports would allow a significant reduction in the current account deficit, from -5.7% of GDP in 2021 to -3.3% and -3.4% of GDP in 2022 and 2023, respectively.”

However, he warns that “inflation continues to rise, driven by shocks on the supply side in a context of strong demand. Higher inflation is expected to persist, and likely to remain above the upper limit of the central bank's tolerance band 4%, during 2022, with rising risks. Inflation is projected to be around 6¾% by the end of 2022.”

“Inflationary pressures, aggravated by the war, could be maintained due to existing indexation and early indications of labour market recovery in some countries,” IMF experts determined.

He stressed that “in addition to the macroeconomic repercussions, the current rise in inflation is regressive, and it is low-income households that are most affected by the increase in the cost of living. In a region that has historically high levels of inequality, the erosion of real income caused by rising food and energy prices will only increase the economic tensions faced by vulnerable households in the region.”