By Nelson Bocanegra

BOGOTA, Dec 30 (Reuters)Colombia’s inflation will far exceed its target this year while forecasts for 2022 have worsened, in part due to a minimum wage hike by the government, which will push the central bank to aggressively raise its benchmark interest rate, a Reuters poll found on Thursday.

The median forecast taken from 14 analysts sees Colombia’s consumer prices rising 5.33% this year, the highest level since 2016, when inflation hit 5.75%, and well beyond the central bank’s 3% target.

In 2020, Latin America’s fourth-largest economy saw inflation of 1.61%. Inflation is expected to grow 0.44% in December, the poll found.

Rising consumer prices in Colombia fall in line with trends around the world, reflecting problems in global supply chains.

Analysts now expect inflation to hit 4% in 2022, up from a previous forecast of 3.80% in last month’s poll.

The new forecasts come after the government reached agreements with workers’ unions and business groups to raise the minimum wage by 10.07%, more than triple the targeted level of inflation, to 1 million pesos (around $248.50).

“This inflationary spiral will continue for the next six months at least, the impulse being caused by the increase in wages and I wouldn’t be surprised to see inflation above 6% in the first quarter of the year,” said Wilson Tovar, chief economist for brokerage Acciones y Valores.

“It will be a difficult year,” he added.

Minutes published from the central bank’s October interest decision, where it raised the benchmark rate by 50 basis points to 3%, show that three of the seven board members wanted to hike it by 75 basis points to offset the expected impact of the minimum wage increase.

Colombia’s economy is expected to grow by around 10% this year, due to higher domestic consumption and in comparison with an historic contraction of 6.8% in 2020 due to the coronavirus pandemic.

(Reporting by Nelson Bocanegra Writing by Oliver Griffin; Editing by Aurora Ellis)

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Source: Nasdaq


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