The cost of living in Colombia will begin to fall from May, says Fedesarrollo

Colombians have felt pressure on the household economy in the first months of 2022 with an increase in the price of most foods, especially the most common ones in the family basket. With regard to this inflationary peak, it is expected that costs will begin to normalize in May.

This was established by Fedesarrollo in its Economic Outlook for April, which sets out a favorable forecast for the national economy, albeit with the effects of a slowdown due to different factors, both internal and external.

The economic research center starts from the fact that in 2021 there was an accelerated growth of the economy that allowed in the fourth quarter of that year, which allowed to record the highest GDP in the country's economic history. However, for this year the context is different, so there is a forecast of real growth of 4.6% of GDP for the total of 2022.

Although the current account deficit increased in 2020 and 2021, it is expected to reduce to -4.5% of GDP this year with the stabilization of the trade balance of exports and remittances. Even the Ministry of Finance showed a fiscal deficit 7.1% of GDP in 2021, lower than expected. For Fedevelopment it means a favorable outlook for this year.

“However, in order to continue the process of fiscal consolidation in the medium term, it is necessary to take measures that promote the increase in permanent revenues and an adjustment in spending that increased significantly during the pandemic,” says Prospectiva's analysis.

Fedesarrollo argues that Colombian economic dynamism, coupled with external factors such as the slow recovery of global supply chains and a rise in the price of commodities such as oil caused by the war between Russia and Ukraine, have led Colombia to face a challenge in the global inflation wave.

The study center indicates that the country saw annual inflation in March 2022 of 8.53%, a level that has exceeded, for six consecutive months, the objective ranges of the Banco de la República, that is, manageable, and “a higher record since July 2016”.

The most affected sector has been food and therefore households, due to the fact that for the same month inflation of 25.4 per cent was achieved, which is historical in national registries and is due to high costs of agricultural inputs and a limited supply of products. As it has been announced that it could happen with flour derived from the conflict in Ukraine.

“The latter, due to the unfavorable agricultural production cycles presented during 2021 and due to the increase in exports of these products in view of the international outlook favourable by the high exchange rate and high international prices”, is another reason for the increase in prices in this sector according to Redevelopment.

However, the outlook is expected to begin to normalize by the second quarter of the year and inflation will slow down. Both for the economic recovery and for the measures that have been taken by the national Government and the Banco de la República.

According to the Economic Outlook of Fedesarrollo, the Central Bank is expected to continue to tighten monetary policy as it has done since the end of 2021 and the beginning of 2022 with an intervention rate of 5.0% and ending the year with an intervention rate of around 7.75%.

The closing balance for 2021 indicates that the economic recovery has already exceeded the pre-pandemic levels of 2019 and continues to have a favorable outlook, despite the shortfall of aid that this boost meant. Due to uncertainty, growth could slow this year 2022, showing a range of 4.5% by 2022 and 3.7% by 2023 (according to International Monetary Fund forecasts).

For regions, overall growth is expected to be between 4.3 and 4.7 per cent. The Caribbean has the best prognosis, due to a force mainly derived from tourism, while Central, Eastern, Pacific and Bogotá stand at 4.6. Amazon and Orinoquia are the most lagging behind.

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