Colombian Update : What's New (s) : Inflation, Vehicles, Minimum Wage, Politics.

WAGES

Whilst scrolling through the press yesterday morning I came across a well structured piece on minimum wages - the premise of the article was to try and summarize the views of the various federations, politicians, the Finance Ministry and the Central Bank and it is clear, especially given the strong showing from the left in the recent elections that this is going to be prickly issues to deal with. FinMin Carrasquilla described the minimum wage in 2008 as a joke and as being ridiculously high, a comment that has come back to haunt him recently however his viewpoint is well documented and there are good arguments to support his view. Whilst back then the wage was only approx USD150 it has now risen, due to the fact it is at minimum index based, to USD260 - to those looking in from overseas that may seem a mere trifle but it is in fact more than it appears. Firstly according, to the OECD to which Colombia is now affiliated, in 2016 no other member country comes close to this country when you compare the minimum wage as a percentage of the average national wage - for the record the US is the worst offender. Secondly during my time here in Colombia I have (on and off) employed housemaids and have never been failed to be surprised by the extras they receive on top of the wage, holidays, transport, pension, health, end of year bonus etc - no one wants to deny anyone a decent salary but that direct employment is fast being replaced by agencies where you simply contract per day - additional to the money the process of employing such positions comes with more paperwork than the average tax return. Running contrary to Carrasquilla is ex President Uribe who a few days ago came out with the left field suggestion of a one off large hike in the minimum wage - quite what provoked this given he was Carrasquilla's boss in 2008 is hard to say but it has had no truck with business leaders. The head of the industry federation (ANDI) Bruce MacMaster correctly stated earlier in the week that this would only drive people into the informal sector with employers simply negotiating a separate wage for them once they had made the change, this has already been gradually occurring and would surely accelerate should any radical measures be taken. As for the Central Bank head Juan Jose Echavarria simply presented a study which highlighted the impact on employment of a 1% increase in wages - driving thousands out of work in the first few months and even more into the informal sector. Its a complicated conundrum and comes about because Colombia has surprisingly strong labour laws however we may be about to hit an inflection point in some areas if this continues due to the squeeze on the employers - the SMEs would be one of the main areas to suffer but again I return to the 100,000s domestic employees. If the head of the house gets a 3% pay rise at his place of work at the end of 2018 they then need to find 3% for the housemaid - only that second 3% comes out of a net salary. How good would it be if the Government found a way to incentivize this structure ?

INFLATION The August reading came in at 0.12% with the 12m figure at 3.10%, both numbers a touch above consensus - the largest driver was housing (0.35%) which in turn was pushed by gas (1.6%) & electric (1.44%). Away from this sector most areas were benign with communications (-0.18%) & entertainment (-0.69%) keeping things steady. Looking forward most analysts expect the 3.10% to be the lowest reading of this cycle and from here we are likely to see some acceleration as 2018 proceeds given the tough comparable situation versus 2017. This of course moves us away from the Central Bank's target for the end of 2018 however despite the low reading for July there was little in terms of belief around the market that 3% was possible. In terms of interest rates this will have no impact on a Central Bank committee that is currently more concerned with events in Turkey & Argentina and the weakening Peso as opposed to inflation which are more likely to be a cause of any rate hikes in the near to medium term. VEHICLES Back when I arrived on these tropical shores a veteran EM fund manager was incessantly badgering me for information on vehicle sales as it was one of the key data points that he followed in determining the health of country and for the first few years he wasn't wrong as markets galloped ahead in line with a automotive sector which had an unprecedented boom driven by the countries new found security - then came the oil price slump, the Peso fell apart and vehicle sales slumped as the price of imported vehicles leapt - the markets paralleled this move and went nowhere for years, a solid theory indeed. Jumping forward a few years and the theory appears to be holding up well - vehicle sales have continued to decline YoY ever since the oil slump and that has been pretty much the sentiment towards the economy and the markets however with the rebound in Consumer Confidence could we see a rebound - I fear not for the time being, that is even without factoring in Argentina & Turkey which have put the Peso under pressure and driven up prices. August saw total registrations of 21,410 which was a 2.4% increase YoY however that 2017 reading of 20,910 was 6.72% down on 2016 and so forth - but could it be a small acorns situation ? Arguably but YTD we stand at 153,898 registrations which whilst up 0.9% YoY will still need the traditional December bump if we are to surpass the 237,957 total of 2017. Again all this is without factoring in any tax increases, or new taxes in the case of many, amidst the very middle classes who have been the protagonists in the expansion of vehicle ownership - again this will likely mirror the wider consumer sector, by this metric we may have to wait a little longer for the real consumer boom. *One caveat - Colombians are not in the habit of saving every penny so potentially they could simply choose smaller ticket items if vehicles remain out of reach * CHAMELEONS Not that anyone needed further proof but 24 hours after informing you that the Liberal, U and Cambio Radical parties would form an independent group in the new Congress the U Party by a vote of 25-16 have decided to now join the Government alliance which should be significant as it gives them 48% of the Congress and 50% of the Senate. The caveat, there always is one in Colombian politics, is that a number of U members made their thoughts crystal clear after the vote claiming favours had been promised (pork barrel which taste of marmalade) which is a disappointment if true - if not a surprise.