Here it is important to note that changes in the interest rate take time to affect economic activity – with a lag of up to six months -: for this reason we have to wait for the Bank’s latest decision, which is in a lower Interest rates suppress inflation.
The inflation tax
The inflation rate was 0.93% last month, for a cumulative annual total of 11.4%. This increase in the cost of living makes social policy ineffective because inflation is tantamount to a tax that primarily affects the poorest people.
The increase in the consumer price index is mainly due to supply factors, as the items that have become more expensive are food and non-alcoholic beverages, accommodation, water, electricity, gas and other fuels, restaurants, hotels and transportation, which have contributed more than more Account for 80% of the total increase.
In addition, inflation expectations remain on an upward trend and at levels not seen since 1999, when Colombia experienced its worst economic crisis. That is the urgency to control it.
First World Monetary Policy
The dilemma between stopping inflation and slipping into recession does not only affect Colombia, but also affects many other countries today.
At its most recent meeting last month, the Federal Reserve raised interest rates by another 75 basis points, even though inflation had already fallen to 8.3%.
For its part, the Central Bank of Europe and for the first time in its history raised inflation by 75 basis points to stop the highest inflation in half a century, which reached double digits.
The tightening of monetary policy follows and is a consequence of the excessive liquidity injected by banks in these countries during the pandemic to maintain or revive economic activity. Now it’s time to get back on track.