Colombian Inflation Unexpectedly Slows to Near 3-Year Low

Colombia’s annual inflation rate unexpectedly fell to a near three-year low in January, as food prices rose less than expected and transport and communications costs fell.

Annual consumer price increases eased to 2.0 percent last month, from 2.44 percent in December, the national statistics agency said yesterday, the slowest pace since April 2010. The result was lower than all 25 forecasts in a Bloomberg survey, whose median estimate was for inflation of 2.22 percent, and takes inflation to the lower bound of its 2 percent to 4 percent target range.

The surprise result will probably cause a rally in local peso bonds, known as TES, as higher real, or inflation-adjusted, yields make the securities more attractive, said Daniel Lozano, head analyst at brokerage Serfinco SA. The central bank has cut its benchmark rate at five of its last seven meetings, citing below-potential growth and a slowing inflation outlook. Colombia has the lowest inflation rate among major Latin American economies after Chile.

“Inflation is an important surprise for the market,” Lozano said in a telephone interview from Bogota yesterday. “This could generate an important demand for TES.”

Market Outlook

Serfinco estimates that the yield on the benchmark peso bonds due 2024 could fall to a record low of between 5.08 percent and 5.15 percent, from 5.19 percent yesterday.

Consumer prices rose 0.30 percent from a month earlier, lower than the 0.50 percent median forecast by analysts. Food costs rose 0.48 percent, compared to a 1.29 percent increase in January 2012. In July, central bank Governor Jose Dario Uribe said that the El Nino weather phenomenon posed a risk of a temporary spike in inflation at the start of 2013.

The cost of transport fell 0.19 percent, after the government cut a tax on gasoline, while communications costs fell 0.12 percent, the statistics agency said in its report.

The economy expanded 2.1 percent in the third quarter from a year earlier, slower than the 4.8 percent annual rate that Finance Minister Mauricio Cardenas says the economy can grow without stoking inflation.

The central bank cut its benchmark interest rate by a quarter point to 4 percent at its January meeting, the lowest rate among major Latin American economies.

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