Colombia Inflation Dips but Core Pressures Intensify

The Gasoline Illusion in Colombia Inflation Data

On the surface, the February number looks like progress. Colombia inflation eased six basis points to 5.29% annually, with a monthly variation of 1.08% — well below the 5.49% that Banco de la República‘s analyst survey had expected and the 5.52% forecast by Fedesarrollo’s financial opinion poll. But the headline masks a troubling dynamic that every major analyst group in Bogotá identified within hours of the data release: the improvement was artificial, driven by a COP$500 per gallon reduction in regular gasoline prices. This is part of The Rio Times’ comprehensive coverage of Latin American financial markets and economic developments.

ANIF, the Colombian economic think tank, calculated that the gasoline cut accounted for roughly 7% of the monthly CPI. Without it, monthly inflation would have reached 1.16% and annual inflation would have accelerated to 5.38% — above January’s 5.35% rather than below it. The regulated category was the only one that decelerated, dropping from 5.5% to 4.0% annually, with electricity prices contributing negative 0.57 percentage points thanks to improved reservoir levels that pushed wholesale power prices down 71.6% year-on-year.

Colombia Inflation Driven by the Minimum Wage Effect

The real story lies in the components that are accelerating. Services inflation rose to 6.45% annually from 6.33% in January, contributing 2.90 percentage points to total CPI — meaning services alone account for more than half the inflation basket. Within that category, restaurant meals contributed 1.60 points, housing services 1.38 points, and dining out 0.52 points. These are precisely the sectors most sensitive to labor costs, and Andrés Pardo of XP Investments noted they have been accelerating steadily since President Petro decreed a 23% minimum wage increase for 2026, pushing the minimum to COP$2 million ($470) including transport allowance.

Food prices told a similar story, with annual inflation jumping to 5.84% from 5.11% in January — the steepest acceleration in the entire CPI basket. Plantains surged 36.4% year-on-year, beef and derivatives 12.0%, and coffee 48.3%. The year-to-date cumulative inflation of 2.27% through February already exceeds the 2.08% registered at the same point in 2025, a comparison that Luis Fernando Mejía of Lumen Economic Intelligence called particularly worrying.

Central Bank Faces an Impossible Calendar

Banco de la República’s January decision to hike the benchmark rate by 100 basis points to 10.25% — a move that surprised markets expecting a hold — now appears prescient. The core inflation measure excluding food and regulated items, which the central bank considers its most reliable demand gauge, rose 13 basis points in February to 5.52%, moving further from the 3% target rather than toward it. Daniel Velandia of Credicorp Capital warned that these core measures are diverging from the headline in a preoccupying direction.

The outlook compounds the dilemma. Further gasoline price cuts face fiscal constraints and are undermined by rising global oil prices driven by the Middle East conflict. Agricultural prices face upward pressure from road closures caused by heavy rains in northwestern Colombia and from disruptions to agricultural input trade. And the full wage-pass-through effect of the 23% minimum increase — the largest in proportional terms since the early 2000s — has only begun to materialize, with economists expecting its peak impact in the second quarter. President Petro celebrated the February number, declaring that the minimum wage does not cause inflation, but the data tells a more nuanced story: the components most tied to labor costs are accelerating fastest, even as the headline benefits from a one-time fuel subsidy that the government may not be able to repeat.