Latam Daily: Colombia Inflation Beats, Mexico’s Meets

• Colombia: Inflation accelerated in February, impacted by indexation effects and gas prices, reinforcing expectations of rate stability in March

• Mexico: Inflation edged up in February in line with consensus

COLOMBIA: INFLATION ACCELERATED IN FEBRUARY, IMPACTED BY INDEXATION EFFECTS AND GAS PRICES, REINFORCING EXPECTATIONS OF RATE STABILITY IN MARCH

Colombia’s monthly CPI inflation stood at 1.14% m/m in February 2025, according to data published by DANE on Friday, March 7^th. The result was above analysts’ expectations in BanRep’s survey of 0.98% m/m and slightly above Scotiabank Colpatria’s expectation of 1.10% m/m. In February, 12 of the 13 major groups had positive monthly variations, reflecting the usual price increase in education, the impact on higher utility gas prices, and higher-than-expected indexation effects in services.

In February, education prices increased according to the regulation based on inflation of the previous year. Regulated transportation rates also contributed significantly, while rents had a stronger indexation than that registered in February 2024. In the case of utilities, the increase in gas prices announced by some service providers contributed significantly, adding up to an individual contribution of 16bps. On the positive side, food had a moderate increase, even below its historical average.

With all the above, annual headline inflation rose from 5.22% to 5.28%, posting the second month in a row of increases (chart 1). Core inflation metrics had mixed behaviours; ex-food inflation accelerated from 5.39% to 5.44%; in contrast, inflation excluding food and regulated prices fell from 5.02% to 4.90%. The previous behaviour shows that despite an indexation effect making inflation go down slower than expected, there is also a significant contribution in the inflation increase coming from regulated prices. Goods inflation accelerated from 0.56% y/y to 0.67% y/y, while services inflation declined from 7.34% y/y to 7.22% y/y, still well above the central bank target of 3%.

Inflation in Colombia is facing a challenging outlook that reflects the impact of the minimum wage increase in the usual indexation of services and now the effect of higher regulated prices, making us discard the possibility of seeing inflation below 4% this year. Having said that, we expect BanRep to maintain a cautious stance at its March meeting. In addition to the increase in inflation, we also have a scenario of high uncertainty in the international financial market, coupled with Fitch’s news about the reduction in the sovereign credit rating outlook. All of the above makes us anticipate rate stability at 9.50% at the March 31^st meeting. Ahead of March inflation, we see a moderate chance of relief to the annual headline inflation that could motivate the central bank to resume the easing; for now, we project the monetary policy rate closing around 8% at year-end. We estimate that the neutral rate could only be reached by the end of 2026.

Complementary highlights:

• The lodging and utilities sector contributed the most to inflation, accounting for ~30% of inflation and showing a higher indexation in rents and price increases on utilities. The lodging and utilities sector registered a monthly variation of 1.16%, contributing 36bps to the total variation. Rental rates registered a variation of 0.82%, and other services related to housing also registered positive variations, demonstrating a strong indexation effect tied to the minimum wage. Meanwhile, in utilities, the variation was 2.67% m/m, mainly explained by increased gas prices of 14.42% m/m.

• Transportation, education, and food accounted for nearly 50% of inflation. In education, the variation was 5.57% m/m, contributing 22bps to the total, showing greater increases in primary and secondary education enrollments. In the case of transportation, the variation was 1.57% m/m, contributing 21bps to the total, highlighting the increase in regulated urban transport fares, positive variation in air transport, and the rise in school route fares, something that is associated with the price adjustments that materialized in February for the entire education sector.

• Food registered a variation of 0.60% m/m, contributing 11bps to the total, a moderate variation compared to the monthly historical average for February. Fresh fruit (+3.64% m/m), meat (+0.81% m/m), and tomatoes (+8.21% m/m) contributed the most to the increase, while bananas (-4.62% m/m) and potatoes (-6.73% m/m) partially offset the movement.

• The inflation of goods increased moderately from 0.56% m/m to 0.67% m/m, while services inflation slowed down from 6.79% to 6.57%, still well above BanRep’s target. Durable goods maintain controlled inflation (-0.14% m/m), as some items, such as vehicles, registered negative variations in February, which netted off the increase in other tradable goods, such as home appliances. Meanwhile, services inflation shows a more significant challenge in the fall. It is also evident that other labour-intensive services, such as domestic cleaning services (+1.77% mm/), restaurants (+0.84% m/m), hotels (+0.38% m/m), cinemas (+4.84%m/m), among others show positive variations, given their greater sensitivity to the minimum wage increase (charts 2 and 3).

—Jackeline Piraján & Daniela Silva

MEXICO: INFLATION EDGED UP IN FEBRUARY IN LINE WITH CONSENSUS

In February, inflation rose to 3.77% from 3.59% (vs. 3.77% consensus in the Citi Survey, chart 4), with core inflation practically unchanged at 3.65% (vs. 3.61% consensus, 3.66% previously). Within this, goods (chart 5) remained with little change at 2.75% (2.74% previously), while services (chart 5) moderated to 4.64% (4.69% previously). On the other hand, non-core inflation (chart 4) accelerated to 4.08% (3.34% previously), highlighting agricultural products, which rose to 3.89% (0.56% previously), with a drop in fruits and vegetables of -5.54%, but an increase of 10.63% in livestock products. On a monthly comparison, overall inflation rose 0.28% (0.29% previously, 0.27% consensus), the core component increased 0.48% (0.41% previously, 0.45% consensus), and non-core inflation stood at -0.39% (-0.14% previously). For the coming months, inflation presents an upward risk balance, highlighting the potential impact of tariff measures between Mexico and the US and a possible pass-through to prices due to greater depreciation; however, the risk of broader economic weakness could push prices down due to lower demand. As for implications for Banxico policy, the consensus will remain in favour of a 50bps cut at the bank’s March 27^th meeting. 

—Rodolfo Mitchell, Brian Pérez & Miguel Saldaña