The increase in the cost of living has been driven by food, services, and excessive public spending. The El Niño phenomenon threatens to push the indicator to 7 percent by the end of 2026, which would force the Banco de la República to maintain its high interest rate.
Below, we present four key points to understand what is happening with inflation, which reached 6.14 percent in June:
1. What has become most expensive
The cost of living in Colombia consolidated a worrying upward trend. For the fourth consecutive month, annual inflation continued to accelerate reaching 6.14 percent in June, hitting a level not seen since July 2024.
This figure reflects an increase compared to the 5.84 percent reported in May and is also above the 4.82 percent recorded a year ago.
According to an analysis by Anif, this rebound reflects the persistent pressures the economy has been experiencing since the beginning of the year, explained by price indexation and the sharp 23 percent increase in the minimum wage.
The engine of this acceleration remains concentrated in the services and food sectors, which explained 72.7 percent of the annual result in June. Three categories accounted for 64 percent of the increases: housing and public services led the contribution with a share of 1.6 percentage points and a variation of 5.0 percent.
It was followed by food and non-alcoholic beverages with 1.3 percentage points (6.8 percent); and in third place was restaurants and hotels with 1.1 percentage points and the highest variation in the basket (9.6 percent).
In detail, the products that most affected household budgets were meals in restaurants (0.74 percentage points), imputed rent (0.62 percentage points), urban transport (0.51 percentage points), actual rent (0.46 percentage points), beef (0.34 percentage points), and fresh fruits (0.30 percentage points).
Following these behaviors, inflation for the first half of the year closes at 4.77 percent, surpassing the 3.74 percent recorded a year ago. This reflects, according to Anif, higher expectations for the end of 2026, because during the first six months, on average, about 76 percent of the total annual inflation accumulates.
2. Public spending and its impact on inflation
Although the high interest rates of the Banco de la República aim to cool consumption to lower prices, an internal factor seems to be working in the opposite direction: public spending.
Various analysts agree that the level of spending by the government of President Gustavo Petro is generating demand pressures that prevent a faster correction of the cost of living.
For César Pabón, executive director of Economic Research at Corficolombiana, this factor is undoubtedly one of the main reasons behind the price increases.
Pabón explains that the pressure is transmitted directly through demand: when the Government, companies, or households increase their demand for goods and services, costs tend to rise. This dynamic is especially complex today, as it occurs despite the higher cost of credit.
The magnitude of state spending is clear: the public administration accounted for about one percentage point of the Gross Domestic Product (GDP) in the first quarter of the year (2.2 percent).
Without this public boost, the economy would have grown one point less, demonstrating how official spending artificially sustains high demand, to which the usual consumption pressures typical of an electoral period are added.
For his part, Camilo Pérez, director of Economic Research at Banco de Bogotá, nuances that while public spending has an initially favorable impact by accelerating growth, its excesses – like those of private consumption – inevitably lead to inflationary pressures.
According to Pérez, recent inflation results show that the economy is moving at a faster pace than its potential capacity, which explains the observed rebounds in price baskets.
Along the same lines, Luis Fernando Mejía, CEO of Lumen Economic Intelligence, agrees that state spending is a relevant pressure, although not the only one. When this item exceeds the country’s productive capacity, aggregate demand (total spending on goods and services) skyrockets, affecting services and sectors where supply is slow to respond more strongly.
Mejía also warns about the collateral damage of the phenomenon: a high fiscal deficit deteriorates market confidence, raises the risk premium, increases financing costs, and alters long-term inflation expectations.
Meanwhile, Valentina Guio, head of Macroeconomic Studies at Anif, details the technical transmission channel of this phenomenon. An increase in public wages or monetary transfers raises households’ disposable income and, therefore, overall consumption.
The problem lies in that this stimulus occurs against production that remains unchanged. Both Anif and the Banco de la República estimate for 2026 a GDP growth of 2.4 percent, a figure that exactly matches the potential growth of the economy.
Producing at its theoretical maximum capacity, the productive apparatus cannot adjust to meet the new demand generated by public spending, which inevitably ends up raising prices in the economy.
3. Rates will remain high to curb inflation
The persistence of inflation has forced the Banco de la República to toughen its stance and prioritize price control over the pace of economic growth. After the surprising 75 basis point increase in June, which placed the reference interest rate at 12 percent – above market projections – analysts agree that the Issuer will keep the brake applied.
The mechanism behind this strategy seeks to directly impact Colombians’ wallets. Camilo Pérez explains that with a high reference rate, credit becomes more expensive, which moderates financing demand and slows economic activity.
At the same time, this rate level aims to encourage saving and investment instead of immediate spending, a typical formula to mitigate inflationary pressures.
In this scenario, the big question is how far the Issuer will go. Projections point to increases continuing in the short term. Mariana Quinche foresees a more moderate adjustment of an additional 25 basis points for the rest of the year, which would bring the rate to a close of 12.25 percent.
In contrast, César Pabón anticipates a more aggressive move for the July 31 board meeting, with a hike that could range between 50 and 100 basis points due to the recent price rebound.
The primary goal of these measures is not only to contain current inflation but to stabilize market expectations in the medium term, which remain unanchored from the Banco de la República’s target range.
This cautious view is supported by Luis Fernando Mejía and Valentina Guio. Both experts point out that the Bank will maintain a strict contractionary policy until there are clear signs that inflation is converging toward the 3 percent target.
Regarding this, Guio highlights that the strong increase in June demonstrates the Issuer’s commitment to anchor expectations, justifying the likelihood of additional increases if pressures persist.
However, Mejía issues a key warning: monetary policy cannot solve the problem alone. To achieve a sustainable price drop, the rate hikes must be supported by a fiscal correction that reduces demand pressure and improves macroeconomic credibility.
4. Inflation will not slow down for now
The path of inflation decline in Colombia has encountered a difficult wall to break down. Far from converging toward the Banco de la República’s target (3 percent), the indicator is expected to keep rising for the rest of 2026.
The consensus among analysts and economic think tanks suggests that, in the most optimistic scenario, the cost of living will close this year around 6.4 or 6.5 percent; however, the accumulation of internal and external pressures threatens to push the final figure toward the 7 percent barrier.
The main driver of this persistent rebound lies in demand pressures and internal costs. The director of Economic Research at Banco de Bogotá and the economist at BBVA Research agree that the residual effects of a 23 percent increase in the minimum wage have had a strong impact on production and service provision costs.
Regarding this, Camilo Pérez highlights that the services category (excluding rents), which accounts for a quarter of Colombians’ consumption basket, is already at 9 percent, a price increase directly responding to the high wage adjustment.
This inertia in price indexation and the resilience of internal demand have led entities such as BBVA Research and Corficolombiana to revise their initial forecasts upward, placing their year-end projections very close to 7 percent.
Adding to this complex local scenario is a mix of external shocks and a drought that will reach its most critical point by the end of the year, worsening the situation during the second half.
The executive director of Economic Research at Corficolombiana warns that fiscal and wage factors will be joined by the impacts of the war between the United States and Iran, along with the effects of the El Niño phenomenon.
The severity of this climatic event is supported by the head of Macroeconomic Studies at Anif, who notes that experts project this could be the strongest drought recorded in the country’s history.
Guio details that this phenomenon will directly impact electricity and natural gas rates, as well as increase the cost of perishable foods due to crop yield losses. Under this extreme drought scenario, Anif estimates that inflation will exceed 7 percent.
The point of convergence among all analysts is that, under any circumstance, Colombia will complete six consecutive years in 2026 with inflation outside the Issuer’s target range (between 2 percent and 4 percent).
Faced with this reality, Luis Fernando Mejía emphasizes that the Banco de la República will be forced to maintain a restrictive monetary policy for longer, which must be accompanied by a credible fiscal adjustment to prevent the disinflationary process from being further delayed.
In this regard, Valentina Guio assures that the unanchoring of expectations due to El Niño will force the Issuer to be more aggressive and contractionary, potentially raising rates to 13 percent by the end of 2026.