20180719-法国巴黎银行-Colombia__The_inflationary_niño_8页_406kb

Summary of "Colombia: The inflationary Niño"

Core Content

This document analyzes the potential impact of El Niño on inflation in Colombia, focusing on the second half of 2018 and early 2019. It is authored by Luiz Eduardo Peixoto from Banco BNP Paribas Brasil SA and part of the Latam Economic Research series. The report provides insights into inflationary pressures from food and energy prices, the role of the central bank (BanRep), and the broader economic context.

Main Views

• Inflationary Pressures:

  • Food and gasoline prices are identified as potential sources of upward inflationary pressure in H2 2018.
  • A moderate El Niño is estimated to add 20 basis points (20bp) to annual headline CPI during its occurrence, including lagged effects.
  • The impact is expected to peak one quarter after the El Niño event becomes moderate, likely in Q1 2019.

• BanRep's Stance:

  • Inflation is expected to remain near the central bank’s target in the short to medium term.
  • Despite rising risks, BanRep is comfortable with its current expansionary policy stance.
  • The central bank is likely to keep rates expansionary until 2019, as inflation is expected to stay within target bands.

• El Niño Intensity:

  • An extreme El Niño is not expected to occur, reducing the likelihood of severe supply shocks.
  • The 2015-16 extreme event is considered unlikely, and even if it were to occur, it would not be the baseline scenario.
  • Low-intensity El Niño events do not significantly affect CPI.

• Supporting Low Inflation Dynamics:

  • The downtrend in core CPI continues, indicating benign inflationary dynamics.
  • Global food and protein prices remain subdued, and fuel price spikes are expected to abate.
  • Non-tradable inflation is particularly sticky, reflecting a two-year lag in indexed prices (see Chart 2).

• Economic and Monetary Factors:

  • The appreciation of the COP is expected to have a limited impact on inflation.
  • The output gap remains wide, which limits demand-side inflationary pressures from an incipient economic recovery.
  • Firmer growth is required before the central bank considers raising interest rates.

• GDP Forecasts:

  • The report reaffirms above-consensus GDP growth forecasts of 3% for 2018 and 3.5% for 2019.
  • These forecasts are based on higher crude prices but still fall short of what BanRep considers potential.

Key Information

• El Niño Monitoring: The possibility of an intense El Niño is a key risk that must be closely monitored.
• Policy Outlook: The central bank is expected to maintain an expansionary stance until 2019, given the low inflation outlook.
• Market Context: The document includes charts (Chart 1 and Chart 2) illustrating the relationship between El Niño and food inflation, as well as the breakdown of non-tradable inflation.
• Non-Independent Research: The document is noted as non-independent research under MiFID II, intended for professional clients and eligible counterparties.
• Legal and Compliance Disclosures: The report includes extensive legal notices, disclosure statements, and regulatory information for various jurisdictions, emphasizing the non-investment research nature and confidentiality of the content.

Conclusion

While El Niño could exert modest upward pressure on inflation in 2019, the overall inflation outlook remains favorable. The central bank is expected to maintain expansionary monetary policy in the near term, as inflation is anticipated to stay within target ranges. The output gap and global commodity trends support this view, and the likelihood of an extreme El Niño event is considered low. The document serves as a market communication and is not intended as investment advice.