The US dollar’s recent rise against the peso is raising concerns in Colombia over inflation as importing goods from the United States has become more expensive.
Local media on Monday said that local markets and analysts are eagerly awaiting the release of the latest inflation figures of national statistics agency DANE.
If the last month’s increase of inflation lasts, this could affect consumer prices for the middle and upper classes, and manufacturing businesses like car factories that import parts from US manufacturing plants.
The dollar reached a peak of COP3,398 at one point on Friday and could exceed the COP3,400 mark after markets in Colombia open on Tuesday. Monday was a bank holiday.
Over the past month, the peso lost 15% of its value.
While experts consulted by local media expected the dollar’s hike to be temporary, the director of national business association director ANDI, Bruce MacMaster, said the volatility between the two countries’ currencies is the main concern in the import sector.
We hope the market will stabilize and thus allow [companies] to meet budgets, execute better investment plans and [cheaper] purchases of imported raw materials, which are undoubtedly affected by the high volatility of the exchange rate.
ANDI director Bruce Macmaster via El Tiempo
According to a survey by Citi, experts expect the DANE to announce an inflation rate of 3.3% compared to June last year. This would be 0.2 percentage points higher than 2018’s inflation rate.
City Colombia said in the report cited by economic newspaper Portfolio that “the effect of devaluation on inflation is a relevant risk, but not sufficient to exceed the target range.”
In a stressed scenario of an annual devaluation of 15% and an average exchange rate of 3,630 pesos for the rest of the year, the impact of the transfer would not lead to inflation exceeding 4%.
Citi Colombia
Nevertheless, the Central Bank last week suspended its purchases of dollars last week in an attempt to curb the peso drop.
A global slowdown in economic growth as a consequence of US President Donald Trump’s trade war with China and threats to impose a similar war on Mexico is Colombia’s main risk on the long term.
The most delicate part is when you think about what will happen to global growth, and I think we are going to have an additional three months in which the global economic figures point to that risk of recession. Therefore, it is not so easy to propose that the exchange rate will recover, because the first thing we need is to change an issue that is not known if it will change, and that is the foreign policy of the United States on trade.
