Latam Daily: In-Line Chile CPI; Fitch Changes Colombia Outlook to ‘Negative’

• Chile: February CPI stood at 0.4% m/m (4.7% y/y)

• Colombia: Fiscal uncertainty takes its toll on Colombia’s credit outlook

CHILE: FEBRUARY CPI STOOD AT 0.4% M/M (4.7% Y/Y)

• We maintain our 3.5% inflation forecast for end-2025

February CPI rose 0.4% m/m (4.7% y/y), in line with market expectations and slightly below ours. The ex-volatile CPI stood at 0.3% m/m (3.8% y/y), almost exclusively due to the contribution of services (+0.4% m/m) as goods remained unchanged. On the other hand, volatile inflation (0.6% m/m) came mainly from fuels (LPG gas, gasoline) and cigarettes, given the low food inflation observed in the month.

Today’s reading would be within the baseline scenario of the December IPoM (BCCh Monetary Policy Report), so it would not represent a relevant surprise for the central bank. This would support its current inflation projection (Dec-25: 3.6% y/y) ahead of the March IPoM, in a context of peso appreciation and lower oil prices. At Scotia, we maintain our inflation projection of 3.5% y/y for December.

Inflationary diffusion indicators reveal contained inflationary pressures, around minimum levels for goods and with seasonal dynamics for services (charts 1 and 2). The diffusion for the total CPI declined to 53.4% (51.4% for CPI ex-volatiles), in the face of the fall of the goods indicator to levels of 48%, the minimum since 2018. For its part, the services diffusion also declined following its seasonal patterns, although it is somewhat above its averages. 

There were limited second-round effects of electricity tariff hikes. Following a new electricity tariff hike in January, we observed second-round effects only in some products where electricity represents an important part of their production costs. Almost nine months after the first hike, our assessment is of limited second-round effects, which are concentrated in specific products. 

—Aníbal Alarcón

COLOMBIA: FISCAL UNCERTAINTY TAKES ITS TOLL ON COLOMBIA’S CREDIT OUTLOOK

Fitch reduced Colombia’s sovereign credit rating outlook from “stable” to “negative”, maintaining the rating at BB+ (one notch below investment grade).

Fitch’s move is a reaction to the deterioration in Colombia’s fiscal position exposed in the latest Financing Plan 2025 (FP2025), released at the beginning of February. Still, more importantly, it is a reaction to the lack of corrective measures. Fitch projects difficulties in complying with the fiscal rule this year and projects a further increase in the debt-to-GDP ratio to 62% of GDP in 2026 (table 1). 

We see Fitch’s action as a strong message to the Finance Ministry, not only because the fiscal deficit was well above expectations in 2024 but because of a substantial lack of credibility in fiscal plans for 2025. In the FP2025, the MoF does not include material risks that are already known and that could induce volatility, as this will prolong the current modus operandi of launching optimistic perspectives and end up with spending cuts that are insufficient to make adjustments in debt levels.

Minister Guevara has said that despite the challenging fiscal context, Colombia has complied with debt payments and will continue with this tradition; however, from our perspective, the erratic communication is implying higher premiums in the sovereign debt, which in turn produces pressures in the interest burden that currently represents more than 4% of GDP.

All in all, the COLTES market should continue with a steepened shape. The long end will reflect fiscal uncertainty, which, in our opinion, is also a product of manoeuvres that increase the supply at the long end of the curve to find liquidity to solve short-term compromises and enter the market out of the visible auctions. In the case of FX, the USDCOP appreciation at the beginning of the year has been a product of what we consider temporary flows, according to our macro model, the fundamental value is between 4250–4350 pesos, as currently the USDCOP is not pricing the fiscal risk properly.

Key points about Fitch’s decision:

• What could lead to a negative action (downgrade): Further deterioration in the debt-to-GDP ratio and public finances with persistently high deficits. Further macro deterioration reflected in weak investment and low growth prospects.

• What could lead to a positive action is fiscal consolidation, which achieves debt-to-GDP ratio stability. Improvement in macro policy enhancing growth.

• Macro projections: Fitch estimates economic growth to accelerate to 2.75% in 2025 amid resilient consumer spending and recovery on investment. Inflation could be close to the ceiling of the target range by the end of the year, the current account deficit could stay around 2.1% of GDP, while the debt burden could continue rising to 62% of GDP in 2026. At Scotiabank Colpatria, projections are slightly more negative than Fitch’s; in our fiscal scenario, the possibility of surpassing debt levels of 62% of GDP in 2025 is higher, mainly due to potential liabilities that are not reflected in the current FP2025, related to the budgetary reserve and due to the potential shortfall of income compared with current projections.

—Jackeline Piraján