Colombia's CPI Seen Rising 0.06% on Low Food Prices

Colombia's consumer price index is expected to have posted a modest increase in july as food costs remain in check, defusing inflation worries from the central bank, which could prompt a new reduction in its key interest rate.

A survey of seven economists by Dow Jones Newswires produced a median estimated on-month increase of 0.06% for July. 

The projections ranged from a 0.02% contraction to a 0.17% increase.

If the median projection is accurate, the July inflation reading could ratify a slowdown in price increases in Colombia that have been largely linked to deceleration in food prices, which account for over a quarter of the country's consumer price index basket.

June's CPI put 12-month inflation at 3.20%, down from 3.44% through May. 

The central bank's 2.012 official target inflation range is 2% to 4%, but the bank would like to see price increases end the year at 3% or lower.

Earlier this week central bank chairman Jose Dario Uribe said inflation is on track to slow to that 3% level.

The main reason why inflation is slowing, said in a research note brokerage firm Alianza Valores, is a decline in food prices. 

"There have been widespread reductions in the cost of food over the last few weeks" Alianza Valores said.

The slowing in inflation was one of the factors behind the central bank's decision on July 27 to reduce its key lending rate for the first time in two years. 

The bank cut the rate by 25 basis points to 5% in an effort to boost economic activity.

"Inflation and inflation expectations have been well behaved and remain well anchored near the inflation target," Morgan Stanley said in a research note.

Morgan Stanley expects the central bank to carry out one more 25 basis points rate cut before the end of the year.

Colombia's economy decelerated to a 4.7% year-on-year growth rate in the first quarter, compared with a 6.1% rise in activity in the fourth quarter.

Other polls also suggest that inflation in Colombia is slowing. 

The Colombian central bank's monthly survey of inflation expectations for 2.012 showed a decrease in July from the previous month, with analysts on average projecting prices to increase 3.10% for the year.

The July projections are lower than in June, when the survey showed an average estimate of a 3.27% increase in consumer prices for the year. 

The poll of 40 analysts, released July 11 by the central bank, projected consumer price inflation for July should be 0.07% on month.

Colombia's national statistics institute, known as Dane, is scheduled to publish the inflation figure for July on Saturday Aug. 4.