The cost of living in Colombia is unstoppable. Except for the slight decrease (0.16 percentage points) registered in May 2022 in the annual variation, inflation would complete 21 months of risingstanding at 13.12 percent at the end of 2022, the highest in the last 23 years.
The data exceeded the estimates of the Bank of the Republic (12.3 percent), market analysts (12.64 percent) and the Ministry of Finance (12.2 percent), which was confident that prices would begin to fall in December, but this did not happen.
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The worrying thing is that this race will continue, at least, in the first three months of this year, to then begin a gradual decline that can leave it between 7 and 9 percent at the end of this year, according to analysts.
Although it may seem incredible, this price increase generates benefits for some people, which have to do, for example, with obligations that have been contracted in the past.
Two particular cases, but that can cover numerous people or families, relate to those who have current credits contracted years ago or part of the population that pays rent.
For example, those who purchased housing other than social housing (not VIS) on credit and whose mortgage loans are in pesos, very recently, in July of last year, contracted loans that were around 12.4 percent.
But the most favored are those who have credit in pesos taken between May and September 2021. These, which were relatively recently contracted, were taken at less than 9 percent per year, that is to say that in real terms they are paying negative interest, more than 4 percentage points below current inflation.
Those people who have fixed-rate investments, even at very high rates, taking advantage of Banco República’s increases, are covering themselves from inflation.
For their part, people who bought from social housing credit (VIS) in pesosFrom November 2012 to July of last year, all loans that are still in force currently have negative rates. For example, loans taken between September and October 2021 were contracted at rates of 10.5 percent, more than 3.5 points below inflation.
Even in consumer loans there are those who are now paying negative rates. In these loans agreed for five years or more, the rates agreed between the end of 2020 and December 2021 were below current inflation. In April and May 2021 they reached less than 12 percent, and they are loans that are very likely still valid today.
“Those people who have fixed-rate investments, even at very high rates, taking advantage of Banco República’s increases, they are hedging from inflation. Today the CDT or short-term investment funds are at 15-16 percent and money is renting them more than inflation itself,” said Andrés Moreno Jaramillo, economic and stock market analyst.
In addition, people who have invested in funds that are indexed to the UVR (Real Value Unit) and to inflation they are making more moneytaking into account that the variation of the Consumer Price Index (CPI) has had an upward trend to reach 13.12 percent.
Otherwise it happens with those who have financial obligations in UVR because they will have to pay more money in interest, since these update their value according to inflation, which is at a maximum of the last 23 years. For this reason, Andrés Moreno’s recommendation is to switch to a fixed rate. “There is no reason to be in UVR with high inflation scenarios,” he said.
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profit with leases
As for Colombians who live in rent, they clearly also benefited if the contracts were renewed at the end of 2022, since this is one of the services that can increase at the same rate as inflation every year.
For example, those who had their lease adjusted in December, this rose by 5.6 percent, which was inflation for 2021. If it had been renewed a month later, in January, the increase would have been 13.12 percent. This situation is more or less similar for all those who renewed their housing rental contracts between September and December.
13.12 percent will be the increase that people or families who renew their rental contract in the course of 2023 will have to assume. For example, if one million pesos is currently paid, the increase can be a maximum of 131,200 pesos, therefore, they will pay 1,131,200 pesos monthly.
But it must be taken into account that this increase can only be applied when the 12 months have elapsed since the signing of the contract, that is, when the extension of the contract is signed.
“The increase in the canon affects not only the families that live on rent, but also the owners of the houses, which 85 percent belong to strata 1, 2 and 3 and, in the absence of a pension or other additional income, earn their living from these rents,” explains Karina Reyes, president of Fedelonjas, who adds that this increase is of great interest to the Colombian population since more than 34 percent of homes in the country are rented.
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Saving, an option
A CDT or a similar investment is a good alternative for people to shield themselves at this juncture
Undoubtedly, high inflation like the one experienced by Colombia ends up hitting the pockets of all Colombians, who, in order to compensate a little for these higher costs of living, also have two alternatives: postpone those projects that require financing until the end of the year and, rather, take advantage of rising rates to look for savings and investment alternatives while the current ‘downpour’ passes.
“A CDT or similar investment It is a good alternative that people have to shield themselves at this juncture,” says David Cubides, director of Economic Studies at Grupo Alianza, who considers that it is a good time to take advantage of the rate hikes from the Banco de la República.
For the economist, this is not the time to take credit, even less if the option is to use a credit card, in which interest close to the maximum allowed is usually applied. Instead, you can search for, for example, CDT that are paying rates above 15 percentin which these surpluses of liquidity can be placed so that they generate some profitability for 12, 18 or more months.
The foregoing, without forgetting that consumption patterns can be changed, while inflation begins to subside, something that can happen after the first quarter of 2023.
That the cost of living yields will not be an easy taskAbove all, because external factors also influence it. It is not just a question of the Banco de la República continuing to raise its rates, as it will have to continue to do.
For Munir Jalil, Chief Economist for the Andean Region of BTG Pactual, it is necessary to reinforce the message that there is a monetary authority committed to making inflation converge towards lower levels, that the Government commit to this discourse and stop defend that inflation is a phenomenon of supply, since there are elements of supply as well as demand. “What has triggered inflation is the good economic performance that we brought from 2022”dice.
ECONOMY AND BUSINESS