Academic literature on the topic 'Food Production Index'

Society relies on agricultural commodities to feed and clothe the world’s population and play an important role in the economy as well as the financial markets. Unlike other commodities, agricultural commodities (grains and oilseeds, dairy, and softs) have unique characteristics that may include seasonality, perishability, and production dependent on weather conditions. Further, these products are an important part of international trade and are crucial in providing food security to ensure a stable supply of food worldwide. Financial investments within the agriculture industry have increased over the last several decades due in part to the commercialization of food production, the introduction of agricultural commodity index funds, and the increased investment in futures markets. This chapter introduces the major agricultural products, discusses price determinants and how to invest in agriculture, and highlights the differences between agricultural commodities and other commodities.

The section of the monograph analyzes statistical data on the production of agro-industrial raw materials for the period from 1990 to 2023. It has been established that during this period the ratio between the produced products of crop production and livestock production has changed significantly. The share of livestock production does not exceed 22.7%. Animal husbandry in Ukraine, as a separate industry, is not a priority in terms of food security, and this negatively affects the consumption of animal protein by Ukrainians. In 1990, the consumption of meat and meat products was 82.4 kg per person, which corresponded to 103% of the recommended supply rate. Out of the total share of meat and meat products consumed in 1990, beef was predominant in the diet – 46.48%, pork – 36.89%, and poultry meat – 16.63%. Over the next ten years, meat consumption decreased to only 41.1% of the norm. From 2000 to 2020, the level of consumption of meat and meat products varied from 63.75% to 69.25%, the share of beef in the total mass of meat consumed decreased to 10.2%. Beef consumption data correlates with the dynamics of changes in the cattle population. The state of food security in Ukraine has been analyzed according to the overall value of the Global Food Security Index. According to these data, the situation with food security in the country during the war significantly worsened compared to previous years, but is not critical, in 2022, the food standards in Ukraine were provided at 70.2, the quality of consumed protein – 81.3. Unfortunately, the share of beef consumption as a source of complete protein and certain vitamins for Ukrainians is insignificant. The reasons for the decrease in the number of livestock are analyzed. The factors that contributed to the decrease in the share of consumption of this type of meat by the population of the state have been considered. It is noted that the state of war had a negative impact on food security in Ukraine, and subsequently on the health of the nation.

AbstractClimate change threatens development and economic growth in Africa. It increases risks for individuals and governments with unprecedented negative impacts on agriculture. Specifically, climate change presents a major threat to food security in Africa for the long term due to the low adaptive capacity to deal with successive climate shocks. There is a need for greater awareness of the trends of food crisis patterns and adaptive initiatives. The objective of this chapter was to analyze the trends of the food crisis in Africa within the past 10 years and adaptive initiatives. Quantitative data analyzed for food security indicators were obtained from the United Nations Food and Agriculture Organization (FAO) and World Development Indicators (WDI) available at the Environment and Climate Change data portal. Policy and adaptation measures related to climate change were reviewed in 26 countries in Africa, with the view to highlight their integrative nature in enhancing food security. High prevalence of undernourishment was observed in six countries, all in sub-Saharan Africa (SSA) including Chad, Liberia, Central African Republic, The Democratic Republic of the Congo, Zambia, and Zimbabwe. Countries with a high land acreage under cereal production recorded reduced undernourishment. Niger demonstrated effective adaptation for food security by registering the highest crop production index in extreme climate variability. However, Kenya appears to be the most predisposed by registering both high climate variability and below average crop production index. It is observed that diversification and technology adoption are key strategies applied across the countries for adaptation. However, the uptake of technology by smallholder farmers is still low across many countries in SSA.

AbstractClimate change threatens development and economic growth in Africa. It increases risks for individuals and governments with unprecedented negative impacts on agriculture. Specifically, climate change presents a major threat to food security in Africa for the long term due to the low adaptive capacity to deal with successive climate shocks. There is a need for greater awareness of the trends of food crisis patterns and adaptive initiatives. The objective of this chapter was to analyze the trends of the food crisis in Africa within the past 10 years and adaptive initiatives. Quantitative data analyzed for food security indicators were obtained from the United Nations Food and Agriculture Organization (FAO) and World Development Indicators (WDI) available at the Environment and Climate Change data portal. Policy and adaptation measures related to climate change were reviewed in 26 countries in Africa, with the view to highlight their integrative nature in enhancing food security. High prevalence of undernourishment was observed in six countries, all in sub-Saharan Africa (SSA) including Chad, Liberia, Central African Republic, The Democratic Republic of the Congo, Zambia, and Zimbabwe. Countries with a high land acreage under cereal production recorded reduced undernourishment. Niger demonstrated effective adaptation for food security by registering the highest crop production index in extreme climate variability. However, Kenya appears to be the most predisposed by registering both high climate variability and below average crop production index. It is observed that diversification and technology adoption are key strategies applied across the countries for adaptation. However, the uptake of technology by smallholder farmers is still low across many countries in SSA.

AbstractClimate change and climate variability in Malawi have negatively affected the production of maize, a staple food crop. This has adversely affected food security. On the other hand, there have been increases in growing area, production, yield, consumption, and commercialization of both cassava and sweet potato. Factors behind these increases include the adaptive capacity of these crops in relation to climate change and variability, structural adjustment programs, population growth and urbanization, new farming technologies, and economic development. Cassava and sweet potato are seen to have the potential to contribute to food security and alleviate poverty among rural communities.This study used a simple generic growth index model called GROWEST to model observed yields of maize, cassava, and sweet potato across Malawi between 2001 and 2012. The method can be viewed as a hybrid approach between complex process-based crop models and typical statistical models. For each food crop, the GROWEST model was able to provide a robust correlation between observed yields and spatially interpolated monthly climate. The model parameters, which included optimum growing temperatures and growing seasons, were well determined and agreed with known values. This indicated that these models could be used with reasonable confidence to project the impacts of climate change on crop yield. These projections could help assess the future of food security in Malawi under the changing climate and assist in planning for this future.

AbstractDue to the continuous need to attain food security for the growing population, resource exploitation in the agriculture sector is evident. Hence, both production growth and sustainability have become key policy dilemmas. This paper examines the prospective roles of regional cooperation in attaining sustainable green growth in the agricultural production process. To formulate the Green Growth Index for Agriculture (GGIA), 16 South-through-East Asian countries were considered. The result implies that if the countries could work under a regional cooperation bloc, on average, they can exploit the untapped potential production of 33.8% without deploying any additional resources. Analysis for emission-management reveals that if the countries could work under a regional cooperation bloc, on average, its agriculture emission-management efficiency would be 45%. According to the GGIA, China, Japan, and South Korea have the highest overall efficiency, while Cambodia, Lao PDR, and Thailand have the lowest in this region.

AbstractFarmland has various beneficial functions, such as flood control, water purification, and habitat provision, in addition to food production. These functions are highly compatible with green infrastructure, and the use of farmland as green infrastructure has been discussed in recent years. In order to utilize these functions of farmland, it is preferable to include their usefulness and utilization measures in administrative plans and link them to actual projects. In this research, we collected eight types of administrative plans from local governments across Japan that could be related to the multifunctionality of farmland and reviewed the extent to which they contain descriptions of the multifunctionality of farmland as basic information for promoting the utilization of the multifunctionality of farmland. As a result, we discovered that farmland’s multifunctionality was incorporated into the plans of many municipalities. Municipalities with a certain population size and a high financial strength index, in particular, tended to mention the multifunctional role of farmland in their plans more frequently. In addition, we found that some of the functions were mentioned less frequently in the plans. While descriptions of “conservation of natural environment” and “landscape/culture formation and recreation” were common in many plans, descriptions of “disaster mitigation and response” and “water and food supply” in times of disaster were less common. Finally, we drew some recommendations that can be used as a reference for future planning and project promotion, including dissemination of knowledge and information of farmland’s multifunctionality to government and citizens.

AbstractFarmers in most parts of Africa and Asia still practice subsistence farming which relies minly on seasonal rainfall for Agricultural production. A timely and accurate prediction of the rainfall onset, cessation, expected rainfall amount, and its intra-seasonal variability is very likely to reduce losses and risk of extreme weather as well as maximize agricultural output to ensure food security.Based on this, a study was carried out to evaluate the performance of the European Centre for Medium-range Weather Forecast (ECMWF) numerical Weather Prediction Model and its Subseasonal to Seasonal (S2S) precipitation forecast to ascertain its usefulness as a climate change adaptation tool over Nigeria. Observed daily and monthly CHIRPS reanalysis precipitation amount and the ECMWF subseasonal weekly precipitation forecast data for the period 1995–2015 was used. The forecast and observed precipitation were analyzed from May to September while El Nino and La Nina years were identified using the Oceanic Nino Index. Skill of the forecast was determined from standard metrics: Bias, Root Mean Square Error (RMSE), and Anomaly Correlation Coefficient (ACC).The Bias, RMSE, and ACC scores reveal that the ECMWF model is capable of predicting precipitation over Southern Nigeria, with the best skill at one week lead time and poorest skills at lead time of 4 weeks. Results also show that the model is more reliable during El Nino years than La-Nina. However, some improvement in the model by ECMWF can give better results and make this tool a more dependable tool for disaster risk preparedness, reduction and prevention of possible damages and losses from extreme rainfall during the wet season, thus enhancing climate change adaptation.

On the background of regional climate changes, an increase in the frequency and intensity of extreme droughts has been observed in many regions of Europe in recent years, and this trend is expected to continue in the future. While common in southern Europe, including Bulgaria, drought can adversely affect human life and economic activities. Extreme droughts lead to water scarcity, restricting the availability of irrigation water for agricultural purposes. In the regions where irrigation is vital for sustaining crop production, diminished water availability can result in crop failures and economic losses. This study aims to contribute to understanding the climate-water-food nexus by assessing the impact of drought on the main cereal crops in Bulgaria, namely maize, wheat, and barley. The analysis incorporates climatic data (air temperature and precipitation), hydrological data (streamflow), and statistical data on crop yields. Drought indices such as Standardized Precipitation Evapotranspiration Index (SPEI), Standardized Precipitation Index (SPI), and Streamflow Drought Index (SDI) were calculated at different timescales (from 1 to 12 months) to identify drought periods. A significant decrease in yields is observed during dry years. Correlation analysis shows a clear link between drought in warm months and maize production, while the winter drought is more crucial for wheat and barley.

Recently, the rising food prices have contributed to inflation in Turkey. It has been crucial to analyze the interconnections between the food sector and other sectors of the economy to understand these price dynamics. The aim of this study is to determine the production structure and linkages of the Turkish food sector with other sectors utilizing input-output analysis. The input-output table for the study has provided by the World Input-Output Database. The findings indicate that the food sector requires 0.6477 units of input from other sectors to produce one unit of output. The direct forward linkage coefficient, which measures the input required by other sectors from the food sector, is estimated at 0.4385. The “hosting and catering service activities” sector is identified as the most demanding sector for the food sector’s output, after its own sector, with a share of 0.1267. This finding demonstrates a significant input flow from the food sector to the “accommodation and food service” sector. The total backward and forward linkages for the food sector are computed as 2.0381 and 1.6833 respectively. Therefore, indicating changes in food sector production has significantly influenced other sectors. Both the total backward linkage index value (1.3409) and the total forward linkage index value (1.1075) exceed a certain threshold. This result reveals that the food sector key role in the Turkish economy with push and pull effect on other sectors. It is recommended that prioritize incentive policies that have strong linkages with the food sector and evaluate investment decisions accordingly.

Food safety is about ensuring food hygiene throughout the production chain, from raw material to final consumer; it is the responsibility of all those involved in the food chain and ensures that the risk of contamination is minimised or eliminated. Food hygiene control is essential for any product. Neglect of hygiene rules during production, handling of raw material, unconditional infestation of raw material can lead to the introduction of undesirable microorganisms into products, which can affect the psycho-sensory, physico-chemical and microbiological aspects of products. Microbiological analysis is closely related to food safety. Ignoring this index can lead to serious illnesses in the population and can have a serious impact on the food industry. The aim of this work is the microbiological analysis of kefir, checking the presence of pathogenic bacteria HG 158 and verifying the information on the labels in accordance with the LAW No. 279 of 15-12-2017 on consumer information on food products. The microbiological analysis did not detect pathogenic bacteria, which proves that producers who have implemented the quality management system provide consumers with safe products.

The article provides an analysis of functional and technological properties of vegetable proteins (soya and amaranth) used as the main component of biologically active additive. Methods for determining the index of solubility and swelling capacity vegetable proteins are used. The hypothesis of using these proteins in the composition of biologically active food additives normalizing the gastrointestinal tract in old age is proposed.

The sanitary-hygienic control of food is essential for any product. The microbiological index is equal to safety of the product, its permission to be in commerce and used in food. Ignoring this index can result serious illnesses among the population upon to the economic damage of an industry through the loss of the number of consumers, the closure of businesses and the loss of local consumer confidence. Food poisoning and acute intestinal diseases are the consequences of non-compliance with sanitary-epidemiological rules, contamination with pathogenic microorganisms can occur during production through the raw material used in production, the company's equipment, the hands or handling of the product in the sales units, incorrect storage, damage of packaging, equipment, unprocessed cutting, unsanitary displays and sellers who do not follow the hygiene of their hands. Every year in the Republic of Moldova, there are cases of acute intestinal infections, including salmonellosis and E. coli infection. Pathogenic microorganisms contaminate the finished product that are commercialized. For us as a consumer community food safety is important. Was repeated the research of hygienic quality of cheeses to see in growth if changes commercial rules of hygiene against microbiological contamination.

Russia has natural advantages in wheat production and is a major wheat exporter in the world, playing a crucial role in stabilizing food security. In this article, based on the data from the FAO database, the wheat export impact index is used to study the distribution of influence and dominant factors on the production and export of Russian wheat. The conclusions are as follows. The number of countries with different types of influence of Russian wheat exports continues to increase, and countries with strong influence demonstrate a pattern of displacement from Eastern Europe to North Africa and South Africa; The influence of wheat exports consists of domestic policy, foreign policy, and transport. Transport and other factors dominate.

This article examines the impact of inflation in agricultural prices on food security in the countries surrounding the Black Sea, including Bulgaria, Georgia, Romania, the Russian Federation, Turkey, and Ukraine. Concerns about inflation in agricultural prices and food security have increased globally in recent years, especially due to the COVID-19 pandemic and the Russia-Ukraine conflict, which has resulted in problems with agricultural production and logistical constraints, leading to increased food prices worldwide. This study analyzes the impact of agricultural price inflation on food security in the aforementioned countries. The analysis uses the "producer price index" of agricultural products, such as corn, beans, sugar beets, sunflower seeds, and wheat, published by the United Nations Food and Agriculture Organization (FAO) to measure inflation, and "per capita food supply variability" to assess food security. The study examines the complex effects of agricultural product inflation on food security with the help of panel vector error correction model.

Diabetes is a metabolic disease whose prevalence in the world is increasing every year. To improve the life quality of diabetes patients and achieve better treatment results, adjusted food products with lower carbohydrate quantities are necessary. Primarily fructose is used in products for diabetes patients, but fructose increases obesity risk. The aim of the study is to evaluate available scientific articles on potential natural sweeteners for the substitution of fructose in food products for people with diabetes. Natural sweeteners could be a good alternative to fructose, they decrease product glycemic index and positively influence the health of diabetes patients. Stevia is a plant used in food production for obtaining sweet taste. Glycosides extracted from stevia are food additives, i.e. sweeteners. Stevia decreases sugar levels and improves insulin secretion, it has antibacterial and antioxidative features. The use of stevia in food production causes a bitter aftertaste of products. To disguise the bitter aftertaste, other natural sweeteners are added to stevia. Thaumatin is a sweet protein used in food production. To improve product taste, polyols and other natural sweeteners are added. Polyols are a good alternative for fructose substitution because they slightly influence sugar levels in the blood and they have high chemical thermal stability. Products containing different combinations of several natural sweeteners possess the best sensory features. The research results show that stevioside, rebaudioside, thaumatin, and polyols are good alternatives for fructose substitution in products. To clarify how sweeteners, influence food product features additional researches are necessary.

The aim of this study was to test the toxicity and mechanism of toxicity of bisphenol A (BPA) using onion (Allium cepa L.) as a test model. Onions were divided into six groups (each consisting of 10 bulbs) and exposed to BPA (1-50 mg/L) or de-water (control) for 72 h. Upon exposure to BPA, onion roots were collected, and parameters of phytotoxicity, oxidative stress, and genotoxicity were assessed. The decrease in root growth and in the mitotic index was observed already after exposure to BPA at a concentration of 1 mg/L. BPA reduced the level of glutathione and increased the activity of superoxide dismutase. Additionally, BPA increased the production of reactive oxygen species, malondialdehyde, and protein carbonyls, as well as the frequency of micronuclei and nuclear buds. Thus, BPA phytotoxicity can be linked to changes in oxido-reductive balance and genome damage. Since humans can be exposed to BPA through the food chain, BPA presence in the environment should be controlled.

The repercussions of COVID-19 resulted in global disruptions to supply and demand as well as shocks to the global production networks. This paper employs a trade analysis approach to assess the impacts of coronavirus on Cambodia’s export performance. Utilising Revealed Comparative Advantage (RCA) index, changes were analysed using data pre-and post-pandemic to explore the Kingdom’s competitiveness and dynamic export position during this time. We found evidence that COVID-19 has caused a 6 percent decline in Cambodia’s trade in 2020 and a further 7 percent decline in 2021. However, the effect varies significantly across sectors. The decline was as high as 80 percent for travel services and as low as 65 percent for transport services. Several goods, including animals, food products, textiles and clothing, footwear, and minerals, saw a decline in exports during the early stages of the COVID-19 outbreak, but their exports quickly recovered during the later stages. We also observe that exports of vegetables, transportation equipment, plastics and rubber, and certain machinery products were quite resilient to the pandemic, with export values rising in both 2020 and 2021. Our RCA analysis indicates that the pandemic has contributed to a decline in the export competitiveness of a dozen of the leading trade products, including a few agricultural products and several textile, garment and footwear products. In addition, there is evidence of a gradual increase in competitiveness, particularly for rubber and plastic products, machinery, and electronic equipment, which not only represents the country’s growing participation in regional machinery production networks but also its modest progress in diversifying export commodities.

The Dragonfly Mercury Project is a collaborative initiative that utilizes dragonfly larvae as biosentinels to monitor mercury concentrations across 180 national parks and other protected lands, including Grand Canyon National Park (GRCA). These indicators serve as surrogates for environmental risk and can indicate where fish consumption could pose health risks through exposure to mercury. From 2018 to 2024, citizen scientists and staff from the National Park Service and U.S. Geological Survey helped collect close to 400 larvae from 25 GRCA sites across nearly 300 river miles, revealing mercury concentrations ranged from 3.0 to 1337 ng/g (parts per billion) dry weight. Results were available for 20 tributary sites. Upon comparing mercury concentrations to an impairment index, 90% of the sites (N = 18) were classified as low or no risk for ecological impairment, though 10% (2 sites) exceeded moderate or severe risk benchmarks (Pete’s Pocket and Buck Farm Canyon, respectively). The data from GRCA tributaries suggests that Hg risk is relatively low compared to the nationwide dataset. A catch-per-unit-effort metric was used to assess sampling difficulty at 10 sites, revealing that Nankoweap Creek would take the longest to sample, while the mainstem site at Colorado River RM204 would take the shortest. Sources of mercury to GRCA likely stem from a combination of atmospheric deposition, upstream discharge from Lake Powell, and other watershed contributions. In addition, food web dynamics, underlying water chemistry, and environmental disturbances (e.g., floods) contribute to mercury mobilization, production, and bioaccumulation. Report findings provide a baseline for connecting ongoing science in the Colorado River watershed, informing management actions, and enhancing public engagement through citizen science.

1.1 Macroeconomic summary Economic recovery has consistently outperformed the technical staff’s expectations following a steep decline in activity in the second quarter of 2020. At the same time, total and core inflation rates have fallen and remain at low levels, suggesting that a significant element of the reactivation of Colombia’s economy has been related to recovery in potential GDP. This would support the technical staff’s diagnosis of weak aggregate demand and ample excess capacity. The most recently available data on 2020 growth suggests a contraction in economic activity of 6.8%, lower than estimates from January’s Monetary Policy Report (-7.2%). High-frequency indicators suggest that economic performance was significantly more dynamic than expected in January, despite mobility restrictions and quarantine measures. This has also come amid declines in total and core inflation, the latter of which was below January projections if controlling for certain relative price changes. This suggests that the unexpected strength of recent growth contains elements of demand, and that excess capacity, while significant, could be lower than previously estimated. Nevertheless, uncertainty over the measurement of excess capacity continues to be unusually high and marked both by variations in the way different economic sectors and spending components have been affected by the pandemic, and by uneven price behavior. The size of excess capacity, and in particular the evolution of the pandemic in forthcoming quarters, constitute substantial risks to the macroeconomic forecast presented in this report. Despite the unexpected strength of the recovery, the technical staff continues to project ample excess capacity that is expected to remain on the forecast horizon, alongside core inflation that will likely remain below the target. Domestic demand remains below 2019 levels amid unusually significant uncertainty over the size of excess capacity in the economy. High national unemployment (14.6% for February 2021) reflects a loose labor market, while observed total and core inflation continue to be below 2%. Inflationary pressures from the exchange rate are expected to continue to be low, with relatively little pass-through on inflation. This would be compatible with a negative output gap. Excess productive capacity and the expectation of core inflation below the 3% target on the forecast horizon provide a basis for an expansive monetary policy posture. The technical staff’s assessment of certain shocks and their expected effects on the economy, as well as the presence of several sources of uncertainty and related assumptions about their potential macroeconomic impacts, remain a feature of this report. The coronavirus pandemic, in particular, continues to affect the public health environment, and the reopening of Colombia’s economy remains incomplete. The technical staff’s assessment is that the COVID-19 shock has affected both aggregate demand and supply, but that the impact on demand has been deeper and more persistent. Given this persistence, the central forecast accounts for a gradual tightening of the output gap in the absence of new waves of contagion, and as vaccination campaigns progress. The central forecast continues to include an expected increase of total and core inflation rates in the second quarter of 2021, alongside the lapse of the temporary price relief measures put in place in 2020. Additional COVID-19 outbreaks (of uncertain duration and intensity) represent a significant risk factor that could affect these projections. Additionally, the forecast continues to include an upward trend in sovereign risk premiums, reflected by higher levels of public debt that in the wake of the pandemic are likely to persist on the forecast horizon, even in the context of a fiscal adjustment. At the same time, the projection accounts for the shortterm effects on private domestic demand from a fiscal adjustment along the lines of the one currently being proposed by the national government. This would be compatible with a gradual recovery of private domestic demand in 2022. The size and characteristics of the fiscal adjustment that is ultimately implemented, as well as the corresponding market response, represent another source of forecast uncertainty. Newly available information offers evidence of the potential for significant changes to the macroeconomic scenario, though without altering the general diagnosis described above. The most recent data on inflation, growth, fiscal policy, and international financial conditions suggests a more dynamic economy than previously expected. However, a third wave of the pandemic has delayed the re-opening of Colombia’s economy and brought with it a deceleration in economic activity. Detailed descriptions of these considerations and subsequent changes to the macroeconomic forecast are presented below. The expected annual decline in GDP (-0.3%) in the first quarter of 2021 appears to have been less pronounced than projected in January (-4.8%). Partial closures in January to address a second wave of COVID-19 appear to have had a less significant negative impact on the economy than previously estimated. This is reflected in figures related to mobility, energy demand, industry and retail sales, foreign trade, commercial transactions from selected banks, and the national statistics agency’s (DANE) economic tracking indicator (ISE). Output is now expected to have declined annually in the first quarter by 0.3%. Private consumption likely continued to recover, registering levels somewhat above those from the previous year, while public consumption likely increased significantly. While a recovery in investment in both housing and in other buildings and structures is expected, overall investment levels in this case likely continued to be low, and gross fixed capital formation is expected to continue to show significant annual declines. Imports likely recovered to again outpace exports, though both are expected to register significant annual declines. Economic activity that outpaced projections, an increase in oil prices and other export products, and an expected increase in public spending this year account for the upward revision to the 2021 growth forecast (from 4.6% with a range between 2% and 6% in January, to 6.0% with a range between 3% and 7% in April). As a result, the output gap is expected to be smaller and to tighten more rapidly than projected in the previous report, though it is still expected to remain in negative territory on the forecast horizon. Wide forecast intervals reflect the fact that the future evolution of the COVID-19 pandemic remains a significant source of uncertainty on these projections. The delay in the recovery of economic activity as a result of the resurgence of COVID-19 in the first quarter appears to have been less significant than projected in the January report. The central forecast scenario expects this improved performance to continue in 2021 alongside increased consumer and business confidence. Low real interest rates and an active credit supply would also support this dynamic, and the overall conditions would be expected to spur a recovery in consumption and investment. Increased growth in public spending and public works based on the national government’s spending plan (Plan Financiero del Gobierno) are other factors to consider. Additionally, an expected recovery in global demand and higher projected prices for oil and coffee would further contribute to improved external revenues and would favor investment, in particular in the oil sector. Given the above, the technical staff’s 2021 growth forecast has been revised upward from 4.6% in January (range from 2% to 6%) to 6.0% in April (range from 3% to 7%). These projections account for the potential for the third wave of COVID-19 to have a larger and more persistent effect on the economy than the previous wave, while also supposing that there will not be any additional significant waves of the pandemic and that mobility restrictions will be relaxed as a result. Economic growth in 2022 is expected to be 3%, with a range between 1% and 5%. This figure would be lower than projected in the January report (3.6% with a range between 2% and 6%), due to a higher base of comparison given the upward revision to expected GDP in 2021. This forecast also takes into account the likely effects on private demand of a fiscal adjustment of the size currently being proposed by the national government, and which would come into effect in 2022. Excess in productive capacity is now expected to be lower than estimated in January but continues to be significant and affected by high levels of uncertainty, as reflected in the wide forecast intervals. The possibility of new waves of the virus (of uncertain intensity and duration) represents a significant downward risk to projected GDP growth, and is signaled by the lower limits of the ranges provided in this report. Inflation (1.51%) and inflation excluding food and regulated items (0.94%) declined in March compared to December, continuing below the 3% target. The decline in inflation in this period was below projections, explained in large part by unanticipated increases in the costs of certain foods (3.92%) and regulated items (1.52%). An increase in international food and shipping prices, increased foreign demand for beef, and specific upward pressures on perishable food supplies appear to explain a lower-than-expected deceleration in the consumer price index (CPI) for foods. An unexpected increase in regulated items prices came amid unanticipated increases in international fuel prices, on some utilities rates, and for regulated education prices. The decline in annual inflation excluding food and regulated items between December and March was in line with projections from January, though this included downward pressure from a significant reduction in telecommunications rates due to the imminent entry of a new operator. When controlling for the effects of this relative price change, inflation excluding food and regulated items exceeds levels forecast in the previous report. Within this indicator of core inflation, the CPI for goods (1.05%) accelerated due to a reversion of the effects of the VAT-free day in November, which was largely accounted for in February, and possibly by the transmission of a recent depreciation of the peso on domestic prices for certain items (electric and household appliances). For their part, services prices decelerated and showed the lowest rate of annual growth (0.89%) among the large consumer baskets in the CPI. Within the services basket, the annual change in rental prices continued to decline, while those services that continue to experience the most significant restrictions on returning to normal operations (tourism, cinemas, nightlife, etc.) continued to register significant price declines. As previously mentioned, telephone rates also fell significantly due to increased competition in the market. Total inflation is expected to continue to be affected by ample excesses in productive capacity for the remainder of 2021 and 2022, though less so than projected in January. As a result, convergence to the inflation target is now expected to be somewhat faster than estimated in the previous report, assuming the absence of significant additional outbreaks of COVID-19. The technical staff’s year-end inflation projections for 2021 and 2022 have increased, suggesting figures around 3% due largely to variation in food and regulated items prices. The projection for inflation excluding food and regulated items also increased, but remains below 3%. Price relief measures on indirect taxes implemented in 2020 are expected to lapse in the second quarter of 2021, generating a one-off effect on prices and temporarily affecting inflation excluding food and regulated items. However, indexation to low levels of past inflation, weak demand, and ample excess productive capacity are expected to keep core inflation below the target, near 2.3% at the end of 2021 (previously 2.1%). The reversion in 2021 of the effects of some price relief measures on utility rates from 2020 should lead to an increase in the CPI for regulated items in the second half of this year. Annual price changes are now expected to be higher than estimated in the January report due to an increased expected path for fuel prices and unanticipated increases in regulated education prices. The projection for the CPI for foods has increased compared to the previous report, taking into account certain factors that were not anticipated in January (a less favorable agricultural cycle, increased pressure from international prices, and transport costs). Given the above, year-end annual inflation for 2021 and 2022 is now expected to be 3% and 2.8%, respectively, which would be above projections from January (2.3% and 2,7%). For its part, expected inflation based on analyst surveys suggests year-end inflation in 2021 and 2022 of 2.8% and 3.1%, respectively. There remains significant uncertainty surrounding the inflation forecasts included in this report due to several factors: 1) the evolution of the pandemic; 2) the difficulty in evaluating the size and persistence of excess productive capacity; 3) the timing and manner in which price relief measures will lapse; and 4) the future behavior of food prices. Projected 2021 growth in foreign demand (4.4% to 5.2%) and the supposed average oil price (USD 53 to USD 61 per Brent benchmark barrel) were both revised upward. An increase in long-term international interest rates has been reflected in a depreciation of the peso and could result in relatively tighter external financial conditions for emerging market economies, including Colombia. Average growth among Colombia’s trade partners was greater than expected in the fourth quarter of 2020. This, together with a sizable fiscal stimulus approved in the United States and the onset of a massive global vaccination campaign, largely explains the projected increase in foreign demand growth in 2021. The resilience of the goods market in the face of global crisis and an expected normalization in international trade are additional factors. These considerations and the expected continuation of a gradual reduction of mobility restrictions abroad suggest that Colombia’s trade partners could grow on average by 5.2% in 2021 and around 3.4% in 2022. The improved prospects for global economic growth have led to an increase in current and expected oil prices. Production interruptions due to a heavy winter, reduced inventories, and increased supply restrictions instituted by producing countries have also contributed to the increase. Meanwhile, market forecasts and recent Federal Reserve pronouncements suggest that the benchmark interest rate in the U.S. will remain stable for the next two years. Nevertheless, a significant increase in public spending in the country has fostered expectations for greater growth and inflation, as well as increased uncertainty over the moment in which a normalization of monetary policy might begin. This has been reflected in an increase in long-term interest rates. In this context, emerging market economies in the region, including Colombia, have registered increases in sovereign risk premiums and long-term domestic interest rates, and a depreciation of local currencies against the dollar. Recent outbreaks of COVID-19 in several of these economies; limits on vaccine supply and the slow pace of immunization campaigns in some countries; a significant increase in public debt; and tensions between the United States and China, among other factors, all add to a high level of uncertainty surrounding interest rate spreads, external financing conditions, and the future performance of risk premiums. The impact that this environment could have on the exchange rate and on domestic financing conditions represent risks to the macroeconomic and monetary policy forecasts. Domestic financial conditions continue to favor recovery in economic activity. The transmission of reductions to the policy interest rate on credit rates has been significant. The banking portfolio continues to recover amid circumstances that have affected both the supply and demand for loans, and in which some credit risks have materialized. Preferential and ordinary commercial interest rates have fallen to a similar degree as the benchmark interest rate. As is generally the case, this transmission has come at a slower pace for consumer credit rates, and has been further delayed in the case of mortgage rates. Commercial credit levels stabilized above pre-pandemic levels in March, following an increase resulting from significant liquidity requirements for businesses in the second quarter of 2020. The consumer credit portfolio continued to recover and has now surpassed February 2020 levels, though overall growth in the portfolio remains low. At the same time, portfolio projections and default indicators have increased, and credit establishment earnings have come down. Despite this, credit disbursements continue to recover and solvency indicators remain well above regulatory minimums. 1.2 Monetary policy decision In its meetings in March and April the BDBR left the benchmark interest rate unchanged at 1.75%.

With the proliferation of Free Trade Agreements (FTAs) over the past decade, demand for quantitative analysis of their likely impacts has surged. The main quantitative tool for performing such analysis is Computable General Equilibrium (CGE) modeling. Yet these models have been widely criticized for performing poorly (Kehoe, 2002) and having weak econometric foundations (McKitrick, 1998; Jorgenson, 1984). FTA results have been shown to be particularly sensitive to the trade elasticities, with small trade elasticities generating large terms of trade effects and relatively modest efficiency gains, whereas large trade elasticities lead to the opposite result. Critics are understandably wary of results being determined largely by the authors’ choice of trade elasticities. Where do these trade elasticities come from? CGE modelers typically draw these elasticities from econometric work that uses time series price variation to identify an elasticity of substitution between domestic goods and composite imports (Alaouze, 1977; Alaouze, et al., 1977; Stern et al., 1976; Gallaway, McDaniel and Rivera, 2003). This approach has three problems: the use of point estimates as “truth”, the magnitude of the point estimates, and estimating the relevant elasticity. First, modelers take point estimates drawn from the econometric literature, while ignoring the precision of these estimates. As we will make clear below, the confidence one has in various CGE conclusions depends critically on the size of the confidence interval around parameter estimates. Standard “robustness checks” such as systematically raising or lowering the substitution parameters does not properly address this problem because it ignores information about which parameters we know with some precision and which we do not. A second problem with most existing studies derives from the use of import price series to identify home vs. foreign substitution, for example, tends to systematically understate the true elasticity. This is because these estimates take price variation as exogenous when estimating the import demand functions, and ignore quality variation. When quality is high, import demand and prices will be jointly high. This biases estimated elasticities toward zero. A related point is that the fixed-weight import price series used by most authors are theoretically inappropriate for estimating the elasticities of interest. CGE modelers generally examine a nested utility structure, with domestic production substitution for a CES composite import bundle. The appropriate price series is then the corresponding CES price index among foreign varieties. Constructing such an index requires knowledge of the elasticity of substitution among foreign varieties (see below). By using a fixed-weight import price series, previous estimates place too much weight on high foreign prices, and too small a weight on low foreign prices. In other words, they overstate the degree of price variation that exists, relative to a CES price index. Reconciling small trade volume movements with large import price series movements requires a small elasticity of substitution. This problem, and that of unmeasured quality variation, helps explain why typical estimated elasticities are very small. The third problem with the existing literature is that estimates taken from other researchers’ studies typically employ different levels of aggregation, and exploit different sources of price variation, from what policy modelers have in mind. Employment of elasticities in experiments ill-matched to their original estimation can be problematic. For example, estimates may be calculated at a higher or lower level of aggregation than the level of analysis than the modeler wants to examine. Estimating substitutability across sources for paddy rice gives one a quite different answer than estimates that look at agriculture as a whole. When analyzing Free Trade Agreements, the principle policy experiment is a change in relative prices among foreign suppliers caused by lowering tariffs within the FTA. Understanding the substitution this will induce across those suppliers is critical to gauging the FTA’s real effects. Using home v. foreign elasticities rather than elasticities of substitution among imports supplied from different countries may be quite misleading. Moreover, these “sourcing” elasticities are critical for constructing composite import price series to appropriate estimate home v. foreign substitutability. In summary, the history of estimating the substitution elasticities governing trade flows in CGE models has been checkered at best. Clearly there is a need for improved econometric estimation of these trade elasticities that is well-integrated into the CGE modeling framework. This paper provides such estimation and integration, and has several significant merits. First, we choose our experiment carefully. Our CGE analysis focuses on the prospective Free Trade Agreement of the Americas (FTAA) currently under negotiation. This is one of the most important FTAs currently “in play” in international negotiations. It also fits nicely with the source data used to estimate the trade elasticities, which is largely based on imports into North and South America. Our assessment is done in a perfectly competitive, comparative static setting in order to emphasize the role of the trade elasticities in determining the conventional gains/losses from such an FTA. This type of model is still widely used by government agencies for the evaluation of such agreements. Extensions to incorporate imperfect competition are straightforward, but involve the introduction of additional parameters (markups, extent of unexploited scale economies) as well as structural assumptions (entry/no-entry, nature of inter-firm rivalry) that introduce further uncertainty. Since our focus is on the effects of a PTA we estimate elasticities of substitution across multiple foreign supply sources. We do not use cross-exporter variation in prices or tariffs alone. Exporter price series exhibit a high degree of multicolinearity, and in any case, would be subject to unmeasured quality variation as described previously. Similarly, tariff variation by itself is typically unhelpful because by their very nature, Most Favored Nation (MFN) tariffs are non-discriminatory in nature, affecting all suppliers in the same way. Tariff preferences, where they exist, are often difficult to measure – sometimes being confounded by quantitative barriers, restrictive rules of origin, and other restrictions. Instead we employ a unique methodology and data set drawing on not only tariffs, but also bilateral transportation costs for goods traded internationally (Hummels, 1999). Transportation costs vary much more widely than do tariffs, allowing much more precise estimation of the trade elasticities that are central to CGE analysis of FTAs. We have highly disaggregated commodity trade flow data, and are therefore able to provide estimates that precisely match the commodity aggregation scheme employed in the subsequent CGE model. We follow the GTAP Version 5.0 aggregation scheme which includes 42 merchandise trade commodities covering food products, natural resources and manufactured goods. With the exception of two primary commodities that are not traded, we are able to estimate trade elasticities for all merchandise commodities that are significantly different form zero at the 95% confidence level. Rather than producing point estimates of the resulting welfare, export and employment effects, we report confidence intervals instead. These are based on repeated solution of the model, drawing from a distribution of trade elasticity estimates constructed based on the econometrically estimated standard errors. There is now a long history of CGE studies based on SSA: Systematic Sensitivity Analysis (Harrison and Vinod, 1992; Wigle, 1991; Pagon and Shannon, 1987) Ho

Banco de la República is celebrating its 100th anniversary in 2023. This is a very significant anniversary and one that provides an opportunity to highlight the contribution the Bank has made to the country’s development. Its track record as guarantor of monetary stability has established it as the one independent state institution that generates the greatest confidence among Colombians due to its transparency, management capabilities, and effective compliance with the central banking and cultural responsibilities entrusted to it by the Constitution and the Law. On a date as important as this, the Board of Directors of Banco de la República (BDBR) pays tribute to the generations of governors and officers whose commitment and dedication have contributed to the growth of this institution.1 Banco de la República’s mandate was confirmed in the National Constitutional Assembly of 1991 where the citizens had the opportunity to elect the seventy people who would have the task of drafting a new constitution. The leaders of the three political movements with the most votes were elected as chairs to the Assembly, and this tripartite presidency reflected the plurality and the need for consensus among the different political groups to move the reform forward. Among the issues considered, the National Constitutional Assembly gave special importance to monetary stability. That is why they decided to include central banking and to provide Banco de la República with the necessary autonomy to use the instruments for which they are responsible without interference from other authorities. The constituent members understood that ensuring price stability is a state duty and that the entity responsible for this task must be enshrined in the Constitution and have the technical capability and institutional autonomy necessary to adopt the decisions they deem appropriate to achieve this fundamental objective in coordination with the general economic policy. In particular, Article 373 established that “the State, through Banco de la República, shall ensure the maintenance of the purchasing power of the currency,” a provision that coincided with the central banking system adopted by countries that have been successful in controlling inflation. In 1999, in Ruling 481, the Constitutional Court stated that “the duty to maintain the purchasing power of the currency applies to not only the monetary, credit, and exchange authority, i.e., the Board of Banco de la República, but also those who have responsibilities in the formulation and implementation of the general economic policy of the country” and that “the basic constitutional purpose of Banco de la República is the protection of a sound currency. However, this authority must take the other economic objectives of state intervention such as full employment into consideration in their decisions since these functions must be coordinated with the general economic policy.” The reforms to Banco de la República agreed upon in the Constitutional Assembly of 1991 and in Act 31/1992 can be summarized in the following aspects: i) the Bank was assigned a specific mandate: to maintain the purchasing power of the currency in coordination with the general economic policy; ii) the BDBR was designatedas the monetary, foreign exchange, and credit authority; iii) the Bank and its Board of Directors were granted a significant degree of independence from the government; iv) the Bank was prohibited from granting credit to the private sector except in the case of the financial sector; v) established that in order to grant credit to the government, the unanimous vote of its Board of Directors was required except in the case of open market transactions; vi) determined that the legislature may, in no case, order credit quotas in favor of the State or individuals; vii) Congress was appointed, on behalf of society, as the main addressee of the Bank’s reporting exercise; and viii) the responsibility for inspection, surveillance, and control over Banco de la República was delegated to the President of the Republic. The members of the National Constitutional Assembly clearly understood that the benefits of low and stable inflation extend to the whole of society and contribute mto the smooth functioning of the economic system. Among the most important of these is that low inflation promotes the efficient use of productive resources by allowing relative prices to better guide the allocation of resources since this promotes economic growth and increases the welfare of the population. Likewise, low inflation reduces uncertainty about the expected return on investment and future asset prices. This increases the confidence of economic agents, facilitates long-term financing, and stimulates investment. Since the low-income population is unable to protect itself from inflation by diversifying its assets, and a high proportion of its income is concentrated in the purchase of food and other basic goods that are generally the most affected by inflationary shocks, low inflation avoids arbitrary redistribution of income and wealth.2 Moreover, low inflation facilitates wage negotiations, creates a good labor climate, and reduces the volatility of employment levels. Finally, low inflation helps to make the tax system more transparent and equitable by avoiding the distortions that inflation introduces into the value of assets and income that make up the tax base. From the monetary authority’s point of view, one of the most relevant benefits of low inflation is the credibility that economic agents acquire in inflation targeting, which turns it into an effective nominal anchor on price levels. Upon receiving its mandate, and using its autonomy, Banco de la República began to announce specific annual inflation targets as of 1992. Although the proposed inflation targets were not met precisely during this first stage, a downward trend in inflation was achieved that took it from 32.4% in 1990 to 16.7% in 1998. At that time, the exchange rate was kept within a band. This limited the effectiveness of monetary policy, which simultaneously sought to meet an inflation target and an exchange rate target. The Asian crisis spread to emerging economies and significantly affected the Colombian economy. The exchange rate came under strong pressure to depreciate as access to foreign financing was cut off under conditions of a high foreign imbalance. This, together with the lack of exchange rate flexibility, prevented a countercyclical monetary policy and led to a 4.2% contraction in GDP that year. In this context of economic slowdown, annual inflation fell to 9.2% at the end of 1999, thus falling below the 15% target set for that year. This episode fully revealed how costly it could be, in terms of economic activity, to have inflation and exchange rate targets simultaneously. Towards the end of 1999, Banco de la República announced the adoption of a new monetary policy regime called the Inflation Targeting Plan. This regime, known internationally as ‘Inflation Targeting,’ has been gaining increasing acceptance in developed countries, having been adopted in 1991 by New Zealand, Canada, and England, among others, and has achieved significant advances in the management of inflation without incurring costs in terms of economic activity. In Latin America, Brazil and Chile also adopted it in 1999. In the case of Colombia, the last remaining requirement to be fulfilled in order to adopt said policy was exchange rate flexibility. This was realized around September 1999, when the BDBR decided to abandon the exchange-rate bands to allow the exchange rate to be freely determined in the market.Consistent with the constitutional mandate, the fundamental objective of this new policy approach was “the achievement of an inflation target that contributes to maintaining output growth around its potential.”3 This potential capacity was understood as the GDP growth that the economy can obtain if it fully utilizes its productive resources. To meet this objective, monetary policy must of necessity play a countercyclical role in the economy. This is because when economic activity is below its potential and there are idle resources, the monetary authority can reduce the interest rate in the absence of inflationary pressure to stimulate the economy and, when output exceeds its potential capacity, raise it. This policy principle, which is immersed in the models for guiding the monetary policy stance, makes the following two objectives fully compatible in the medium term: meeting the inflation target and achieving a level of economic activity that is consistent with its productive capacity. To achieve this purpose, the inflation targeting system uses the money market interest rate (at which the central bank supplies primary liquidity to commercial banks) as the primary policy instrument. This replaced the quantity of money as an intermediate monetary policy target that Banco de la República, like several other central banks, had used for a long time. In the case of Colombia, the objective of the new monetary policy approach implied, in practical terms, that the recovery of the economy after the 1999 contraction should be achieved while complying with the decreasing inflation targets established by the BDBR. The accomplishment of this purpose was remarkable. In the first half of the first decade of the 2000s, economic activity recovered significantly and reached a growth rate of 6.8% in 2006. Meanwhile, inflation gradually declined in line with inflation targets. That was how the inflation rate went from 9.2% in 1999 to 4.5% in 2006, thus meeting the inflation target established for that year while GDP reached its potential level. After this balance was achieved in 2006, inflation rebounded to 5.7% in 2007, above the 4.0% target for that year due to the fact that the 7.5% GDP growth exceeded the potential capacity of the economy.4 After proving the effectiveness of the inflation targeting system in its first years of operation, this policy regime continued to consolidate as the BDBR and the technical staff gained experience in its management and state-of-the-art economic models were incorporated to diagnose the present and future state of the economy and to assess the persistence of inflation deviations and expectations with respect to the inflation target. Beginning in 2010, the BDBR established the long-term 3.0% annual inflation target, which remains in effect today. Lower inflation has contributed to making the macroeconomic environment more stable, and this has favored sustained economic growth, financial stability, capital market development, and the functioning of payment systems. As a result, reductions in the inflationary risk premia and lower TES and credit interest rates were achieved. At the same time, the duration of public domestic debt increased significantly going from 2.27 years in December 2002 to 5.86 years in December 2022, and financial deepening, measured as the level of the portfolio as a percentage of GDP, went from around 20% in the mid-1990s to values above 45% in recent years in a healthy context for credit institutions.Having been granted autonomy by the Constitution to fulfill the mandate of preserving the purchasing power of the currency, the tangible achievements made by Banco de la República in managing inflation together with the significant benefits derived from the process of bringing inflation to its long-term target, make the BDBR’s current challenge to return inflation to the 3.0% target even more demanding and pressing. As is well known, starting in 2021, and especially in 2022, inflation in Colombia once again became a serious economic problem with high welfare costs. The inflationary phenomenon has not been exclusive to Colombia and many other developed and emerging countries have seen their inflation rates move away from the targets proposed by their central banks.5 The reasons for this phenomenon have been analyzed in recent Reports to Congress, and this new edition delves deeper into the subject with updated information. The solid institutional and technical base that supports the inflation targeting approach under which the monetary policy strategy operates gives the BDBR the necessary elements to face this difficult challenge with confidence. In this regard, the BDBR reiterated its commitment to the 3.0% inflation target in its November 25 communiqué and expects it to be reached by the end of 2024.6 Monetary policy will continue to focus on meeting this objective while ensuring the sustainability of economic activity, as mandated by the Constitution. Analyst surveys done in March showed a significant increase (from 32.3% in January to 48.5% in March) in the percentage of responses placing inflation expectations two years or more ahead in a range between 3.0% and 4.0%. This is a clear indication of the recovery of credibility in the medium-term inflation target and is consistent with the BDBR’s announcement made in November 2022. The moderation of the upward trend in inflation seen in January, and especially in February, will help to reinforce this revision of inflation expectations and will help to meet the proposed targets. After reaching 5.6% at the end of 2021, inflation maintained an upward trend throughout 2022 due to inflationary pressures from both external sources, associated with the aftermath of the pandemic and the consequences of the war in Ukraine, and domestic sources, resulting from: strengthening of local demand; price indexation processes stimulated by the increase in inflation expectations; the impact on food production caused by the mid-2021 strike; and the pass-through of depreciation to prices. The 10% increase in the minimum wage in 2021 and the 16% increase in 2022, both of which exceeded the actual inflation and the increase in productivity, accentuated the indexation processes by establishing a high nominal adjustment benchmark. Thus, total inflation went to 13.1% by the end of 2022. The annual change in food prices, which went from 17.2% to 27.8% between those two years, was the most influential factor in the surge in the Consumer Price Index (CPI). Another segment that contributed significantly to price increases was regulated products, which saw the annual change go from 7.1% in December 2021 to 11.8% by the end of 2022. The measure of core inflation excluding food and regulated items, in turn, went from 2.5% to 9.5% between the end of 2021 and the end of 2022. The substantial increase in core inflation shows that inflationary pressure has spread to most of the items in the household basket, which is characteristic of inflationary processes with generalized price indexation as is the case in Colombia. Monetary policy began to react early to this inflationary pressure. Thus, starting with its September 2021 session, the BDBR began a progressive change in the monetary policy stance moving away from the historical low of a 1.75% policy rate that had intended to stimulate the recovery of the economy. This adjustment process continued without interruption throughout 2022 and into the beginning of 2023 when the monetary policy rate reached 12.75% last January, thus accumulating an increase of 11 percentage points (pp). The public and the markets have been surprised that inflation continued to rise despite significant interest rate increases. However, as the BDBR has explained in its various communiqués, monetary policy works with a lag. Just as in 2022 economic activity recovered to a level above the pre-pandemic level, driven, along with other factors, by the monetary stimulus granted during the pandemic period and subsequent months, so too the effects of the current restrictive monetary policy will gradually take effect. This will allow us to expect the inflation rate to converge to 3.0% by the end of 2024 as is the BDBR’s purpose.Inflation results for January and February of this year showed declining marginal increases (13 bp and 3 bp respectively) compared to the change seen in December (59 bp). This suggests that a turning point in the inflation trend is approaching. In other Latin American countries such as Chile, Brazil, Perú, and Mexico, inflation has peaked and has begun to decline slowly, albeit with some ups and downs. It is to be expected that a similar process will take place in Colombia in the coming months. The expected decline in inflation in 2023 will be due, along with other factors, to lower cost pressure from abroad as a result of the gradual normalization of supply chains, the overcoming of supply shocks caused by the weather, and road blockades in previous years. This will be reflected in lower adjustments in food prices, as has already been seen in the first two months of the year and, of course, the lagged effect of monetary policy. The process of inflation convergence to the target will be gradual and will extend beyond 2023. This process will be facilitated if devaluation pressure is reversed. To this end, it is essential to continue consolidating fiscal sustainability and avoid messages on different public policy fronts that generate uncertainty and distrust. 1 This Report to Congress includes Box 1, which summarizes the trajectory of Banco de la República over the past 100 years. In addition, under the Bank’s auspices, several books that delve into various aspects of the history of this institution have been published in recent years. See, for example: Historia del Banco de la República 1923-2015; Tres banqueros centrales; Junta Directiva del Banco de la República: grandes episodios en 30 años de historia; Banco de la República: 90 años de la banca central en Colombia. 2 This is why lower inflation has been reflected in a reduction of income inequality as measured by the Gini coefficient that went from 58.7 in 1998 to 51.3 in the year prior to the pandemic. 3 See Gómez Javier, Uribe José Darío, Vargas Hernando (2002). “The Implementation of Inflation Targeting in Colombia”. Borradores de Economía, No. 202, March, available at: https://repositorio.banrep.gov.co/handle/20.500.12134/5220 4 See López-Enciso Enrique A.; Vargas-Herrera Hernando and Rodríguez-Niño Norberto (2016). “The inflation targeting strategy in Colombia. An historical view.” Borradores de Economía, No. 952. https://repositorio.banrep.gov.co/handle/20.500.12134/6263 5 According to the IMF, the percentage change in consumer prices between 2021 and 2022 went from 3.1% to 7.3% for advanced economies, and from 5.9% to 9.9% for emerging market and developing economies. 6 https://www.banrep.gov.co/es/noticias/junta-directiva-banco-republica-reitera-meta-inflacion-3

Inflation would peak in March and start to gradually decline as of the second quarter of 2023, bringing inflation back to the 3% target over the next two years. • In March 2023, inflation continued to increase, reaching 13.3%. This increase is mainly explained by higher-than-expected growth of perishable food prices, a demand that remains persistently strong, the high inflation of 2022 being used in many cases to calculate price adjustments in 2023, and the aggregate effects of exchange rate increases in recent months, among others. • Starting in the second quarter, inflation would begin to fall and this decline would continue over the next two years. This would occur as food price increases gradually abate, exchange rate pressures on prices would moderate, and import logistics costs and prices of imported inputs, goods and food would continue to temper. • Several factors support this expected inflation decline, including lower cost increases measured by the producer price index, decreases in certain measures of inflation expectations of financial market operators or those who monitor the behavior of the economy, and lower observed increases in food prices. • The cumulative monetary policy interest rate adjustments will contribute to lower excess spending and reduce inflation. The economy would maintain the high levels of activity already achieved, albeit with lower growth rates, which would contribute to reducing inflation. • The economy is growing at a lower pace than in the previous year, which is normal after two years of rapid growth that led to high output levels and a significant decline in the unemployment rate, which is at its lowest level since 2018. • The current high production levels are the result of high spending by both households and businesses (consumption and investment). This spending is excessive relative to the country's income, reflected in the strong growth of imports and the large external deficit seen in 2022. • The technical staff forecasts economic growth of 1% in 2023 and 1% in 2024, mainly due to moderate consumption and investment. • These low growth rates would lessen inflation and the external deficit over the next two years. A heightened policy interest rate is required to ensure price stabilization and contribute to the sustainable growth of the Colombian economy. • Accordingly, Banco de la República has adjusted its monetary policy interest rate in response to the high demand and inflation. • From September 2021 to April 2023, the Board of Directors raised the monetary policy interest rate from 1.75% to 13.25%.

Macroeconomic summary Annual inflation continued to rise in the first quarter (8.5%) and again outpaced both market expectations and the technical staff’s projections. Inflation in major consumer price index (CPI) baskets has accelerated year-to-date, rising in March at an annual rate above 3%. Food prices (25.4%) continued to contribute most to rising inflation, mainly affected by a deterioration in external supply and rising costs of agricultural inputs. Increases in transportation prices and in some utility rates (energy and gas) can explain the acceleration in regulated items prices (8.3%). For its part, the increase in inflation excluding food and regulated items (4.5%) would be the result of shocks in supply and external costs that have been more persistent than expected, the effects of indexation, accumulated inflationary pressures from the exchange rate, and a faster-than-anticipated tightening of excess productive capacity. Within the basket excluding food and regulated items, external inflationary pressures have meaningfully impacted on goods prices (6.4%), which have been accelerating since the last quarter of 2021. Annual growth in services prices (3.8%) above the target rate is due primarily to food away from home (14.1%), which was affected by significant increases in food and utilities prices and by a rise in the legal monthly minimum wage. Housing rentals and other services prices also increased, though at rates below 3%. Forecast and expected inflation have increased and remain above the target rate, partly due to external pressures (prices and costs) that have been more persistent than projected in the January report (Graphs 1.1 and 1.2). Russia’s invasion of Ukraine accentuated inflationary pressures, particularly on international prices for certain agricultural goods and inputs, energy, and oil. The current inflation projection assumes international food prices will increase through the middle of this year, then remain high and relatively stable for the remainder of 2022. Recovery in the perishable food supply is forecast to be less dynamic than previously anticipated due to high agricultural input prices. Oil prices should begin to recede starting in the second half of the year, but from higher levels than those presented in the previous report. Given the above, higher forecast inflation could accentuate indexation effects and increase inflation expectations. The reversion of a rebate on value-added tax (VAT) applied to cleaning and hygiene products, alongside the end of Colombia’s COVID-19 health emergency, could increase the prices of those goods. The elimination of excess productive capacity on the forecast horizon, with an output gap close to zero and somewhat higher than projected in January, is another factor to consider. As a consequence, annual inflation is expected to remain at high levels through June. Inflation should then decline, though at a slower pace than projected in the previous report. The adjustment process of the monetary policy rate wouldcontribute to pushing inflation and its expectations toward the target on the forecast horizon. Year-end inflation for 2022 is expected to be around 7.1%, declining to 4.8% in 2023. Economic activity again outperformed expectations. The technical staff’s growth forecast for 2022 has been revised upward from 4.3% to 5% (Graph 1.3). Output increased more than expected in annual terms in the fourth quarter of 2021 (10.7%), driven by domestic demand that came primarily because of private consumption above pre-pandemic levels. Investment also registered a significant recovery without returning to 2019 levels and with mixed performance by component. The trade deficit increased, with significant growth in imports similar to that for exports. The economic tracking indicator (ISE) for January and February suggested that firstquarter output would be higher than previously expected and that the positive demand shock observed at the end of 2021 could be fading slower than anticipated. Imports in consumer goods, retail sales figures, real restaurant and hotel income, and credit card purchases suggest that household spending continues to be dynamic, with levels similar to those registered at the end of 2021. Project launch and housing starts figures and capital goods import data suggest that investment also continues to recover but would remain below pre-pandemic levels. Consumption growth is expected to decelerate over the year from high levels reached over the last two quarters. This would come amid tighter domestic and external financial conditions, the exhaustion of suppressed demand, and a deterioration of available household income due to increased inflation. Investment is expected to continue to recover, while the trade deficit should tighten alongside high oil and other export commodity prices. Given all of the above, first-quarter economic growth is now expected to be 7.2% (previously 5.2%) and 5.0% for 2022 as a whole (previously 4.3%). Output growth would continue to moderate in 2023 (2.9%, previously 3.1%), converging similar to long-term rates. The technical staff’s revised projections suggest that the output gap would remain at levels close to zero on the forecast horizon but be tighter than forecast in January (Graph 1.4). These estimates continue to be affected by significant uncertainty associated with geopolitical tensions, external financial conditions, Colombia’s electoral cycle, and the COVID-19 pandemic. External demand is now projected to grow at a slower pace than previously expected amid increased global inflationary pressures, high oil prices, and tighter international financial conditions than forecast in January. The Russian invasion of Ukraine and its inflationary effects on prices for oil and certain agricultural goods and inputs accentuated existing global inflationary pressures originating in supply restrictions and increased international costs. A decline in the supply of Russian oil, low inventory levels, and continued production limits on behalf of the Organization of Petroleum Exporting Countries and its allies (OPEC+) can explain increased projected oil prices for 2022 (USD 100.8/barrel, previously USD 75.3) and 2023 (USD 86.8/barrel, previously USD 71.2). The forecast trajectory for the U.S. Federal Reserve (Fed) interest rate has increased for this and next year to reflect higher real and expected inflation and positive performance in the labormarket and economic activity. The normalization of monetary policy in various developed and emerging market economies, more persistent supply and cost shocks, and outbreaks of COVID-19 in some Asian countries contributed to a reduction in the average growth outlook for Colombia’s trade partners for 2022 (2.8%, previously 3.3%) and 2023 (2.4%, previously 2.6%). In this context, the projected path for Colombia’s risk premium increased, partly due to increased geopolitical global tensions, less expansionary monetary policy in the United States, an increase in perceived risk for emerging markets, and domestic factors such as accumulated macroeconomic imbalances and political uncertainty. Given all the above, external financial conditions are tighter than projected in January report. External forecasts and their impact on Colombia’s macroeconomic scenario continue to be affected by considerable uncertainty, given the unpredictability of both the conflict between Russia and Ukraine and the pandemic. The current macroeconomic scenario, characterized by high real inflation levels, forecast and expected inflation above 3%, and an output gap close to zero, suggests an increased risk of inflation expectations becoming unanchored. This scenario offers very limited space for expansionary monetary policy. Domestic demand has been more dynamic than projected in the January report and excess productive capacity would have tightened more quickly than anticipated. Headline and core inflation rose above expectations, reflecting more persistent and important external shocks on supply and costs. The Russian invasion of Ukraine accentuated supply restrictions and pressures on international costs. This partly explains the increase in the inflation forecast trajectory to levels above the target in the next two years. Inflation expectations increased again and are above 3%. All of this increased the risk of inflation expectations becoming unanchored and could generate indexation effects that move inflation still further from the target rate. This macroeconomic context also implies reduced space for expansionary monetary policy. 1.2 Monetary policy decision Banco de la República’s board of directors (BDBR) continues to adjust its monetary policy. In its meetings both in March and April of 2022, it decided by majority to increase the monetary policy rate by 100 basis points, bringing it to 6.0% (Graph 1.5).

Macroeconomic summary The Colombian economy sustained numerous shocks in the second quarter, pri¬marily related to costs and supply. The majority of these shocks were unantic¬ipated or proved more persistent than expected, interrupting the recovery in economic activity observed at the beginning of the year and pushing overall inflation above the target. Core inflation (excluding food and regulated items) increased but remained low, in line with the technical staff’s expectations. A third wave of the pandemic, which became more severe and prolonged than the previous outbreak, began in early April. This had both a high cost in terms of human life and a negative impact on Colombia's economic recovery. Between May and mid-June roadblocks and other disruptions to public order had a sig¬nificant negative effect on economic activity and inflation. The combination and magnitude of these two shocks likely led to a decline in gross domestic product (GDP) compared to the first quarter. Roadblocks also led to a significant in¬crease in food prices. The accumulated effects of global disruptions to certain value chains and increased international freight transportation prices, which since the end of 2020 have restricted supply and increased costs, also affected Colombia’s economy. The factors described above, which primarily affected the consumer price index (CPI) for goods and foods, explain to a significant degree the technical staff’s forecast errors and the increase in overall inflation above the 3% target. By contrast, increases in core inflation and in prices for regulated items were in line with the technical staff’s expectations, and can be explained largely by the elimination of various price relief measures put in place last year. An increase in perceived sovereign risk and the upward pressures that this im¬plies on international financing costs and the exchange rate were further con¬siderations. Despite significant negative shocks, economic growth in the first half of the year (9.1%) is now expected to be significantly higher than projected in the April re¬port (7.1%), a sign of a more dynamic economy that could recover more quickly than previously forecast. Diverse economic activity figures have indicated high¬er-than-expected growth since the end of 2020. This suggests that the negative effects on output from recurring waves of COVID-19 have grown weaker and less long-lasting with subsequent outbreaks. Nevertheless, the third wave of the coro¬navirus, and to an even greater degree the previously mentioned roadblocks and disruptions to public order, likely led to a decline in GDP in the second quar¬ter compared to the first. Despite this, data from the monthly economic tracking indicator (ISE) for April and May surpassed expectations, and new sector-level measures of economic activity suggest that the negative impact of the pandemic on output continues to moderate, amid reduced restrictions on mobility and im¬provements in the pace of vaccination programs. Freight transportation registers (June) and unregulated energy demand (July), among other indicators, suggest a significant recovery following the roadblocks in May. Given the above, annual GDP growth in the second quarter is expected to have been around 17.3% (previously 15.8%), explained in large part by a low basis of comparison. The technical staff revised its growth projection for 2021 upward from 6% to 7.5%. This forecast, which comes with an unusually high degree of uncertain¬ty, assumes no additional disruptions to public order and that any new waves of COVID-19 will not have significant additional negative effects on economic activity. Recovery in international demand, price levels for some of Colombia’s export com¬modities, and remittances from workers abroad have all performed better than projected in the previous report. This dynamic is expected to continue to drive recovery in the national income over the rest of the year. Continued ample international liquidity, an acceleration in vacci¬nation programs, and low interest rates can also be ex¬pected to favor economic activity. Improved performance in the second quarter, which led to an upward growth revision for all components of spending, is expected to continue, with the economy returning to 2019 production levels at the end of 2021, earlier than estimated in the April report. This forecast continues to account for the short-term effects on aggregate demand of a tax reform package along the lines of what is currently being pro-posed by the national government. Given the above, the central forecast scenario in this report projects growth in 2021 of 7.5% and in 2022 of 3.1% (Graph 1.1). In this scenar¬io, economic activity would nonetheless remain below potential. The noted improvement in these projections comes with a high degree of uncertainty. Annual inflation increased more than expected in June (3.63%) as a result of changes in food prices, while growth in core inflation (1.87%) was similar to projections.

1. Macroeconomic Summary In December, headline inflation (13.1%) and the average of the core inflation measures (10.3%) continued to trend upward, posting higher rates than those estimated by the Central Bank's technical staff and surpassing the market average. Inflation expectations for all terms exceeded the 3.0% target. In that month, every major group in the Consumer Price Index (CPI) registered higher-than-estimated increases, and the diffusion indicators continued to show generalized price hikes. Accumulated exchange rate pressures on prices, indexation to high inflation rates, and several food supply shocks would explain, in part, the acceleration in inflation. All of this is in a context of significant surplus demand, a tight labor market, and inflation expectations at different terms that exceed the 3.0% target. Compared to the October edition of the Monetary Policy Report, the forecast path for headline and core inflation (excluding food and regulated items: EFR) increased (Graphs 1.1 and 1.2), reflecting heightened accumulated exchange rate pressures, price indexation to a higher inflation rate (CPI and the producer price index: PPI), and the rise in labor costs attributed to a larger-than-estimated adjustment in the minimum wage. Nevertheless, headline inflation is expected to begin to ease by early 2023, although from a higher level than had been estimated in October. This would be supported initially by the slowdown forecast for the food CPI due to a high base of comparison, the end anticipated for the shocks that have affected the prices of these products, and the estimated improvement in external and domestic supply in this sector. In turn, the deterioration in real household income because of high inflation and the end of the effects of pent-up demand, plus tighter external and domestic financial conditions would contribute to diluting surplus demand in 2023 and reducing inflation. By the end of 2023, both headline and core (EFR) inflation would reach 8.7% and would be 3.5% and 3.8%, respectively, by December 2024. These forecasts are subject to a great deal of uncertainty, especially concerning the future behavior of international financial conditions, the evolution of the exchange rate, the pace of adjustment in domestic demand, the extent of indexation of nominal contracts, and the decisions taken regarding the domestic price of fuel and electricity. In the third quarter, economic activity surprised again on the upside and the growth projection for 2022 rose to 8.0% (previously 7.9%). However, it declined to 0.2% for 2023 (previously 0.5%). With this, surplus demand continues to be significant and is still expected to weaken during the current year. Annual economic growth in the third quarter (7.1 % SCA)1 was higher than estimated in October (6.4 % SCA), given stronger domestic demand specifically because of higher-than-expected investment. Private consumption fell from the high level witnessed a quarter earlier and net exports registered a more negative contribution than anticipated. For the fourth quarter, economic activity indicators suggest that gross domestic product (GDP) would have remained high and at a level similar to that observed in the third quarter, with an annual variation of 4.1%. Domestic demand would have slowed in annual terms, although at levels that would have remained above those for output, mainly because of considerable private consumption. Investment would have declined slightly to a value like the average observed in 2019. The real trade deficit would have decreased due to a drop in imports that was more pronounced than the estimated decline in exports. On the forecast horizon, consumption is expected to decline from current elevated levels, partly because of tighter domestic financial conditions and a deterioration in real income due to high inflation. Investment would also weaken and return to levels below those seen before the pandemic. In real terms, the trade deficit would narrow due to a lower momentum projection for domestic demand and higher cumulative real depreciation. In sum, economic growth for all of 2022, 2023, and 2024 would stand at 8.0%, 0.2% and 1.0%, respectively (Graph 1.3). Surplus demand remains high (as measured by the output gap) and is expected to decline in 2023 and could turn negative in 2024 (Graph 1.4). Although the macroeconomic forecast includes a marked slowdown in the economy, an even greater adjustment in domestic absorption cannot be ruled out due to the cumulative effects of tighter external and domestic financial conditions, among other reasons. These estimates continue to be subject to a high degree of uncertainty, which is associated with factors such as global political tensions, changes in international interest rates and their effects on external demand, global risk aversion, the effects of the approved tax reform, the possible impact of reforms announced for this year (pension, health, and labor reforms, among others), and future measures regarding hydrocarbon production. In 2022, the current account deficit would have been high (6.3 % of GDP), but it would be corrected significantly in 2023 (to 3.9 % of GDP) given the expected slowdown in domestic demand. Despite favorable terms of trade, the high external imbalance that would occur during 2022 would be largely due to domestic demand growth, cost pressures associated with high freight rates, higher external debt service payments, and good performance in terms of the profits of foreign companies.2 By 2023, the adjustment in domestic demand would be reflected in a smaller current account deficit especially due to fewer imports, a global moderation in prices and cost pressures, and a reduction in profits remitted abroad by companies with foreign direct investment (FDI) focused on the local market. Despite this anticipated correction in the external imbalance, its level as a percentage of GDP would remain high in the context of tight financial conditions. In the world's main economies, inflation forecasts and expectations point to a reduction by 2023, but at levels that still exceed their central banks' targets. The path anticipated for the Federal Reserve (Fed) interest rate increased and the forecast for global growth continues to be moderate. In the fourth quarter of 2022, logistics costs and international prices for some foods, oil and energy declined from elevated levels, bringing downward pressure to bear on global inflation. Meanwhile, the higher cost of financing, the loss of real income due to high levels of global inflation, and the persistence of the war in Ukraine, among other factors, have contributed to the reduction in global economic growth forecasts. In the United States, inflation turned out to be lower than estimated and the members of the Federal Open Market Committee (FOMC) reduced the growth forecast for 2023. Nevertheless, the actual level of inflation in that country, its forecasts, and expectations exceed the target. Also, the labor market remains tight, and fiscal policy is still expansionary. In this environment, the Fed raised the expected path for policy interest rates and, with this, the market average estimates higher levels for 2023 than those forecast in October. In the region's emerging economies, country risk premia declined during the quarter and the currencies of those countries appreciated against the US dollar. Considering all the above, for the current year, the Central Bank's technical staff increased the path estimated for the Fed's interest rate, reduced the forecast for growth in the country's external demand, lowered the expected path of oil prices, and kept the country’s risk premium assumption high, but at somewhat lower levels than those anticipated in the previous Monetary Policy Report. Moreover, accumulated inflationary pressures originating from the behavior of the exchange rate would continue to be important. External financial conditions facing the economy have improved recently and could be associated with a more favorable international context for the Colombian economy. So far this year, there has been a reduction in long-term bond interest rates in the markets of developed countries and an increase in the prices of risky assets, such as stocks. This would be associated with a faster-than-expected reduction in inflation in the United States and Europe, which would allow for a less restrictive course for monetary policy in those regions. In this context, the risks of a global recession have been reduced and the global appetite for risk has increased. Consequently, the risk premium continues to decline, the Colombian peso has appreciated significantly, and TES interest rates have decreased. Should this trend consolidate, exchange rate inflationary pressures could be less than what was incorporated into the macroeconomic forecast. Uncertainty about external forecasts and their impact on the country remains high, given the unpredictable course of the war in Ukraine, geopolitical tensions, local uncertainty, and the extensive financing needs of the Colombian government and the economy. High inflation with forecasts and expectations above 3.0%, coupled with surplus demand and a tight labor market are compatible with a contractionary stance on monetary policy that is conducive to the macroeconomic adjustment needed to mitigate the risk of de-anchoring inflation expectations and to ensure that inflation converges to the target. Compared to the forecasts in the October edition of the Monetary Policy Report, domestic demand has been more dynamic, with a higher observed level of output exceeding the productive capacity of the economy. In this context of surplus demand, headline and core inflation continued to trend upward and posted surprising increases. Observed and expected international interest rates increased, the country’s risk premia lessened (but remains at high levels), and accumulated exchange rate pressures are still significant. The technical staff's inflation forecast for 2023 increased and inflation expectations remain well above 3.0%. All in all, the risk of inflation expectations becoming unanchored persists, which would accentuate the generalized indexation process and push inflation even further away from the target. This macroeconomic context requires consolidating a contractionary monetary policy stance that aims to meet the inflation target within the forecast horizon and bring the economy's output to levels closer to its potential. 1.2 Monetary Policy Decision At its meetings in December 2022 and January 2023, Banco de la República’s Board of Directors (BDBR) agreed to continue the process of normalizing monetary policy. In December, the BDBR decided by a majority vote to increase the monetary policy interest rate by 100 basis points (bps) and in its January meeting by 75 bps, bringing it to 12.75% (Graph 1.5). 1/ Seasonally and calendar adjusted. 2/ In the current account aggregate, the pressures for a higher external deficit come from those companies with FDI that are focused on the domestic market. In contrast, profits in the mining and energy sectors are more than offset by the external revenue they generate through exports. Box 1 - Electricity Rates: Recent Developments and Indexation. Author: Édgar Caicedo García, Pablo Montealegre Moreno and Álex Fernando Pérez Libreros Box 2 - Indicators of Household Indebtedness. Author: Camilo Gómez y Juan Sebastián Mariño

Macroeconomic summary Economic activity has recovered faster than projected, and output is now expected to return to pre-pandemic levels earlier than anticipated. Economic growth projections for 2021 and 2022 have been revised upward, though significant downward bias remains. (Graph 1.1). Colombia’s economy returned to recovery in the third quarter after significant supply shocks and a third wave of COVID-19 in the second. Negative shocks affecting mobility and output were absent in the third quarter, and some indicators of economic activity suggest that the rate of recovery in demand, primarily in consumption, outpaced estimates from the July Monetary Policy Report (MPR) in the context of widely expansive monetary policy. Several factors are expected to continue to contribute to output recovery for the rest of the year and into 2022, including the persistence of favorable international financial conditions, an expected improvement in external demand, and an increase in terms of trade. Increasing vaccination rates, the expectation of higher levels of employment and the consequent effect on household income, improved investment performance (which has not yet returned to pre-pandemic levels), and the expected stimulus from monetary policy that would continue to be expansive should also drive economic activity. As a result, output is estimated to have returned to its pre-pandemic level in the third quarter (previously expected in the fourth quarter). Growth is expected to decelerate in 2022, with excess productive capacity projected to close faster than anticipated in the previous report. Given the above, GDP growth projections have been revised upward for 2021 (9.8%, range between 8.4% and 11.2%) and 2022 (4.7%, range between 0.7% and 6.5%). If these estimates are confirmed, output would have grown by 2.3% on average between 2020 and 2022. This figure would be below long-term sustainable growth levels projected prior to the pandemic. The revised growth forecast for 2022 continues to account for a low basis of comparison from this year (reflecting the negative effects of COVID-19 and roadblocks in some parts of the country), and now supposes that estimated consumption levels for the end of 2021 will remain relatively stable in 2022. Investment and net exports are expected to recover at a faster pace than estimated in the previous report. Nevertheless, the downward risks to these estimates remain unusually significant, for several reasons. First, they do not suppose significant negative effects on the economy from possible new waves of COVID-19. Second, because private consumption, which has already surpassed pre-pandemic levels by a large margin, could perform less favorably than estimated in this forecast should it reflect a temporary phenomenon related to suppressed demand as service sectors re-open (e.g. tourism) and private savings accumulated during the pandemic are spent. Third, disruptions to supply chains could be more persistent than contemplated in this report and could continue to affect production costs, with a negative impact on the economy. Finally, the accumulation of macroeconomic imbalances could translate to increased vulnerability to changes in international financial conditions or in international and domestic economic agents’ perception of risk in the Colombian economy, representing a downward risk to growth. A higher-than-expected increase in inflation, the persistence of supply shocks, and reduced excess productive capacity have led to an increase in inflation projections above the target on the forecast horizon (Graph 1.2). Inflation increased above expectations to 4.51% in the third quarter, due in large part to the price behavior of foods and regulated items, and to a lesser extent to core inflation. Increased international prices and costs continue to generate upward pressure on various sub-baskets of the consumer price index (CPI), as has the partial reversion of some price relief measures implemented in 2020 in response to the COVID-19 pandemic.