The uncertainty created by inflation in Colombia and the world has consumers making accounts when paying for products and services.
The firm Nielsen published the results of a series of investigations in which it shows how how the preferences in prices, volume and size have varied by Colombians when it comes to market.
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According to the investigation, the changes of Colombians in the choice of products have been notorious in recent months. The results indicate that 26% of consumers have changed preferences or cheaper substitutes, if you compare them with what you used in previous months. Additionally, 10% of people prefer to buy products with a higher volume.
The strength of dollar and inflation
The scenario described above has two causes: the rise in the price of the dollar and inflation.
Garrett Melson, Strategist at Natixis Investment Managerscomments that all this occurs at a time when manufacturing momentum is slowing as consumption normalizesmoving away from goods and back to services, and the goods industries are working to rid themselves of excess inventories.
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“This is a perfect storm triggered by the European energy crisis which is now leading to a trade deficit. And, more broadly, the stronger the dollar, the more global manufacturing and trade will slow, putting downward pressure on commodities and dragging down related currencies such as the Colombian peso as well.” Melson said.
What to do with your loans and credit cards?
And to curb this inflation, lThe board of directors of the Banco de la República increased the monetary policy intervention rate by 150 basis points. In a unanimous decision by the members of the Issuer, the interest rate is 7.5%. This value has not been seen since December 2016.
Given the implications for consumers, Jenny Paola Lis Gutiérrez, professor at the Business School of the Konrad Lorenz University Foundation, offers some recommendations:
1. Do not take credits. The higher intervention rate of the Banco de la República will be transferred to the financial system, increasing the interest rates of all credits. For example, the current consumer and ordinary credit interest rate for July and published by the Financial Superintendence of Colombia is 21.28%. Therefore, if it is not absolutely necessary, do not go into debt. If you need to do so, review alternatives with funds from employees, cooperatives and family members.
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2. If you are going to use your credit card, make sure that the payment is in a single installment, this will prevent you from having to pay interest at a high rate. If you already have purchases deferred for several months, start reducing those of those purchases that you can pay on your next bill.
3. Don’t fall behind on your payments. Remember that the maximum default interest rate is equivalent to the usury rate, that is, 1.5 times the current bank interest per credit modality. In July, the usury rate in consumer and ordinary loans corresponds to 31.92% annual cash, and for microcredits to 59.21% annual cash.
4. Save on fixed income securities. In the current situation, investing in the stock market can be a bit risky and keeping the resources in cash, given inflation, will represent losses in purchasing power. At this time, several financial institutions are offering attractive rates to raise funds. Compare and make the best decision to deposit a part of your savings.
5. Don’t be alarmedbut take measures for a possible recession in 2023. The increase in interest rates in the United States, combined with the international hydrocarbon situation and other economic and political elements, could lead to a slowdown in economic activity. Therefore, it is better to prepare for a lean period.
Herman Dávila, professor at the Faculty of Business, Management and Sustainability of the Grancolombiano Polytechnic, analyzes the volatility of the dollar.
And it is that the rise in the price of the dollar has the potential to impact the prices of imported goodsthat today weigh around 15% in the family basket of Colombians.
It can also impact the construction sector. On the other hand, according to Dane data, Colombian imports in April 2022 reached 6,390 million dollarswhich implies, from the point of view of the trade balance, that the panorama in Colombia does not look so friendly with a high dollar scenario, considering that the country imports more goods and services than it exports.
It is also important to note that The rise in the dollar impacts the pockets of Colombian households that consume imported goods and servicess, as well as the sectors that depend on imports to be able to operate, function or execute projects, as is the case of the construction sector, where between 16% and 20% of its inputs are imported, so a rise in the dollar has the potential to make projects more expensive, especially those that are still in the structuring stage.
On the other hand, a rise in the dollar will imply higher costs that can be transferred to consumers, as in the case of imported cars, which will surely go up in price.
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This is how June inflation was commented by Anif:
1. In terms of contributions, both monthly and annual inflation, the items of accommodation and services of electricity, water, gas, steam and air conditioning and food and alcoholic beverages were the largest contributors to the total.
2. At first sight, we continue to see how the most important spending groups in the consumption basket of the poorest households and vulnerable continue to lead price growth in the economy.
3. While it is positive that there is a significant moderation in the growth of food prices, those that are contributing the most to the interior of the item are beef, chicken, milk, rice and sugar, high value products and consumption in Colombia.