Colombia Inflation Soars to Highest Since 2008 Amid Drought

  • Consumer prices rose 7.45% in February, exceeding forecasts
  • Severe drought has hit food supplies, raising price of staples

Colombian inflation accelerated to its fastest pace in seven years as a severe drought hits food supplies and a fall in the peso lifts import costs.

Consumer prices rose 7.45 percent in January from a year earlier, the most since 2008, and exceeding the forecasts of all 29 analysts surveyed by Bloomberg, whose median forecast was 7.07 percent.

The central bank lifted its policy rate for a fifth straight month in January, to 6 percent, to try to curb inflationary pressure. The El Nino weather phenomenon and the weaker peso will continue to stoke consumer price rises in the coming months, meaning that policy makers will raise borrowing costs further, said Juan David Ballen, a fixed income strategist at Casa de Bolsa.

“Part of the impact of the exchange rate devaluation has still to be transmitted to prices,” Ballen said. “Inflation is heading toward 8 percent, and the central bank will keep raising rates.”

The peso has lost 43 percent in the past 18 months, making it the second-worst
performing emerging-market currency. It reached a record low of 3,426.86 per
dollar on January 26.

Food prices rose 12 percent from a year earlier, while housing and health care costs each rose about 6.1 percent. Central bank Governor Jose Dario Uribe said earlier on Friday that inflation will slow to 4 percent to 5 percent by the end of the year, as the temporary impact of the weather and the weak peso dissipate, and will be close to its target next year. Colombia targets inflation of 3 percent, plus or minus one percentage point.

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