- Colombia: Inflation beats expectations, pressures BanRep
Global markets are unwinding some of the strong gains of the past few days with limited catalysts for a selloff that began around the beginning of London trading. Overnight developments were limited to the RBNZ hiking by an expected 50bps but with a hawkish decision that noted that a 75bps hike was discussed, amid secondary economic data.
The morning release of September ADP employment figures in the US failed to surprise markets (roughly coming in on consensus) as we await the ISM services report at 10ET—after a strong miss in yesterday’s ISM manufacturing.
Crude oil prices are roughly unchanged today (up 12% over the past two weeks) as markets await a final decision from OPEC+ on supply cuts. Reports over the past few days put the size of the reduction at 1.5 to 2.0mn barrels per day starting in November.
The MXN and BRL are middle-of-the-pack performers among the majors with a 0.5% decline on the day with the negative trading mood. The CLP reached its strongest level in about two weeks yesterday but is underperforming today with a 0.8% depreciation. The currency mostly shrugged off mixed comments yesterday from BCCh Chief Acosta who said in a speech the country is in a challenging economic situation but noted that the weaker peso adds to short-term price pressures.
It’s a quiet day ahead in Latin America after the release of Colombian September CPI data this morning. The country’s statistics agency reported stronger-than-expected inflation that may put pressure on BanRep to extend its hiking cycle or consider a larger increase (see our Colombia team’s write-up below). The COP is following its peers lower, off 0.6% in early dealing.
—Juan Manuel Herrera
COLOMBIA: INFLATION BEATS EXPECTATIONS, PRESSURES BANREP
Colombian inflation came in at 0.93% m/m in September, once again well above economists’ expectations that called for a 0.75% print. Headline y/y inflation reached its highest level since 1999 at 11.44%. Food inflation and housing explained half of the total increase in prices over the month. In terms of the core basket, inflation ex-food accelerated from 7.83% to 8.33%.
The data are likely very surprising for the central bank, as at the latest meeting officials sounded more confident in saying that inflation would slow down in September. The debate between inflation and economic deceleration should intensify at the October meeting, which could again see a split vote on the size of the rate increase of 100bps vs 50bps. For now, our economists expect a 50bps move, the odds of which could be firmed up if economic growth indicators continue slowing down. In terms of forecasts, inflation could continue oscillating between 11.50%–12% until year-end, which would make minimum wage negotiations more difficult as well as impact indexation effects ahead of 2023.
On the political front, the MoF presented the Tax Reform bill to debate in Congress. Additional fiscal income is now estimated at COP22tn instead of COP25tn. The government dropped a tax proposal on oil and coal exports and, instead, they want to implement an income tax surcharge of 10% in the first year, 7.5% in the second, and 5% in the third. The proposal also includes a 5% on the financial system and a surcharge of 3% on hydroelectric companies. VAT holidays were also eliminated. A proposal to eliminate some corporate tax exemptions was also broadly left intact. According to the new congressional calendar, the first debate on the bill will take place tomorrow, where the MoF expects to obtain final approval.
—Sergio Olarte, María (Tatiana) Mejía & Jackeline Piraján
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.