Colombia Inflation Surges to Highest Since 2001 Amid Drought

  • Result was worse than all 31 forecasts in a Bloomberg survey
  • Surging prices point to more interest rate increases to come

Colombian inflation accelerated to the fastest pace since 2001 as the El Nino weather phenomenon hit food supplies and a fall in the peso pushed up import costs.

Consumer prices rose 7.98 percent from a year earlier, double the upper limit of the central bank’s target range, and exceeding the forecasts of all 31 analysts surveyed by Bloomberg, whose median estimate was 7.7 percent.

Policy makers have raised borrowing costs at their last seven monthly meetings, in a bid to damp inflation expectations and demand growth. The worse-than-expected rise in prices last month increases the chance that policy makers will continue to tighten monetary policy, said Juan David Ballen, a strategist at Bogota-based brokerage Casa de Bolsa SA.

“It’s completely possible that inflation will reach 9 percent in the short term,” Ballen said in a phone interview. “It’s going to keep pressuring the central bank, giving them arguments to keep raising rates.”

Food costs rose 12.35 percent from a year earlier, as lack of rain classified as “severe” by the government raised the price of fruit and vegetables. One measure of so-called “core” inflation monitored by the central bank, which aims to track underlying trends by excluding volatile food costs, accelerated to 6.2 percent.

Policy makers want to see inflation expectations, core inflation and the current account deficit improving before they stop raising rates, bank co-director Cesar Vallejo said in an interview last week. All seven bank board members agreed that interest rate rises should continue, according to the minutes of the bank’s March policy meeting, published Friday.

Colombia targets inflation of 3 percent, plus or minus one percentage point. The peso has weakened 18 percent over the last year, the most among major Latin American economies after the Argentine peso.

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