Cardenas Says Slower Colombian Growth to Curb Inflation Pressure

Colombian inflation will slow back to within its target range this year as the economy expands at less than its full potential, Finance Minister Mauricio Cardenas said in an interview.

The annual inflation rate will start to fall in the second half of the year, after reaching a six-year high last month, as slower growth damps pressure on prices, according to Cardenas.

“The reason we’re confident about inflation is that we’re not seeing any aggregate demand pressures,” Cardenas said Sunday, speaking in Washington D.C., where he is attending the International Monetary Fund and World Bank’s spring meeting. “On the contrary, we see that output will grow below potential this year, and that there will be an output gap.”

The central bank’s board, which Cardenas chairs, held borrowing costs unchanged at 4.5 percent for a seventh straight month in March, saying that the highest inflation rate since 2009 is mainly due to temporary factors which will self-correct. The bank will leave rates unchanged at its April 24 meeting, according to all 23 analysts surveyed by Bloomberg.

Annual inflation accelerated to 4.56 percent in March, its fastest pace since 2009, led by food and import costs. This will slow to between 3 percent and 4 percent by the end of 2015, Cardenas said.

Food Shock

The surge in inflation was led by a 37 percent annual increase in the cost of rice, one of the main staples for Colombian families. This makes a case for freer trade in rice and other food products, Cardenas said.

“We need more flexibility in terms of making sure that whenever these pressures emerge, we’re ready to import to prevent such fluctuations in prices,” Cardenas said. “It makes everyone much more aware of the need of having competition and a more open market in terms of rice, as well as other food products.”

Imports of rice, which has a weighting of nearly 2 percent in the consumer price index, are currently restricted by quotas and tariffs.

Cardenas reiterated his forecast for economic growth this year of between 3.5 percent and 4 percent, down from 4.6 percent last year. The slump in the price of crude, which accounts for about half of Colombian exports, will curb growth by about one percentage point, he said.

The IMF forecasts 3.4 percent growth in Colombia, faster than Brazil, Mexico and Chile, though slower than Peru’s 3.8 percent rate.

Government economists will revise their estimates for the nation’s potential annual growth rate in June, Cardenas said. The estimate, used in drawing up the nation’s long-term budget plans, is currently 4.7 percent.

The peso has weakened 23 percent over the last twelve months, the biggest drop after the Russian ruble and the Brazilian real among major emerging market currencies. This isn’t stoking inflationary pressure, and will help narrow the nation’s current account gap, Cardenas said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE