Colombia's Cost of Living Increase This Year
The Índice de Precios al Consumidor (IPC) is an indicator that reflects the cost of living in Colombia. According to the national government, in 2023, it was 9.28%. Once announced, this sparked inflationary pressure in almost every sector of the national economy. In this edition, we will analyze everything about this important data point and its implications for 2024.
What Is the IPC and Why Is It So Important to Know About?
The IPC measures the average percentage change in retail prices of the canasta familiar of goods and services representative of final household consumption. In Colombia, the IPC is calculated monthly by the Departamento Administrativo Nacional de Estadística (DANE). In short, the IPC is used as an indicator of inflation, which is the general increase in prices in the economy.
Why Does Everything Go Up in Price on January 01, 2024?
In Colombia, everyone knows that on January 1 of each year, the prices of a series of goods and services are updated, including utilities, rents, tickets, food, and other goods and services. This update is made according to the IPC of the previous year.
The increase in the IPC in Colombia is due to a series of factors, among which are:
*Global inflation has been driven by higher commodity prices, the war in Ukraine, and supply chain problems.
*Increased domestic consumption, in Colombia, has been driven by economic growth and employment recovery.
The increase in foreign tourism in some cities, such as Bogotá, Cartagena, and Medellín, has increased the demand for services and pushed prices up.
*The devaluation of the Colombian peso against the U.S. dollar has made imported goods more expensive.
How is The Índice de Precios al Consumidor Determined?
The IPC in Colombia is determined by DANE, which surveys a representative sample of households to collect information on the prices of the goods and services they consume. DANE uses this information to calculate the basic Índice de Precios al Consumidor, which excludes the prices of agricultural goods and services.
Legal basis
The legal basis for the IPC in Colombia is Law 643 of 2001, which establishes that DANE is in charge of calculating the index.
Sectors where the IPC affects
The IPC affects all sectors of the economy, but the most affected sectors are the following:
*Wages: One of the positive aspects of the increase in the CPI is the increase in the Salario Mínimo Legal Vigente (SMLV), which is increased annually in Colombia, taking into account the country’s inflation. In 2024 the minimum legal salary in Colombia is 1,300,000 Colombian pesos (approx. 325 USD, with an average TRM of 4,000 COP x 1 USD).
*Food and non-alcoholic beverages: This includes fruits, vegetables, and proteins. In general, all food products and soft drinks.
*Housing: In Colombia, most people do not own the place where they live. There is a huge rental market compared to other countries, where people find it easier to buy the place they live. Consequently, the increase in the cost of accommodation is one of the main costs of the country’s inhabitants.
*Transportation: The increase in the price of buses, taxis, tolls, metro services, flights, and fuel is another concern for everyone in Colombia.
*Communications: Fixed telephony services, cellular, internet, and subscription TV, are another aspect that suffers an increase every year as the IPC rises.
*Education: The cost of private schools and universities is another hard blow for Colombian families who have children. For the first time, the government supervises that the increases are controlled by the Ministry of Education.
*Public services: Drinking water, urban sanitation, domestic gas, and electricity are basic services that tend to increase every year in Colombia.
Case Empresas Publicas de Medellin (EPM)
Empresa de Acueducto y Alcantarillado de Medellín (EPM) announced that the increase in public utilities in 2024 will be 10%. This increase is due to a series of factors, among which are:
- The increase in the cost of raw materials, such as coal and oil.
- The need for investment in infrastructure to guarantee the quality and continuity of services.
Thus, despite the promise of the previous mayor, the increase announced by EPM is a hard blow to the pockets of the inhabitants of Medellín.
Impact of the Índice de Precios al Consumidor by Socioeconomic Strata
The increase in the IPC affects the different socioeconomic strata differently. Households with higher incomes tend to receive higher increases in the cost of products and services. The lower-income strata are also affected by the increase in the IPC each year, since they spend a greater proportion of their income on the purchase of basic goods and services they require.
Family Basket in Colombia vs Medellín
The family basket used to calculate the IPC of Colombia is composed of 12 groups of goods and services, with different weightings for each city, in summary, it includes: education, clothing, utilities, transportation, housing, health, fun and entertainment, culture, food, and recreation. Additionally, it includes necessities such as light bulbs and blankets, among others.
The cost of living in Medellín has increased in recent years, in line with the national trend. In 2024, the cost of living in Medellín is estimated to be 9.64% higher than in 2023.
The following table shows the cost of living in some South American cities. In them, it is observed that Bucaramanga has an indicator of 21.55 – the lowest in the region, being almost 80% cheaper to live in the capital of Santander than in New York. It is followed by Cali (24.81), Barranquilla (25.22), Bogotá (26.40), Cartagena (26.71), and Medellín, which with an index of 27.35 is positioned as the most expensive in Colombia.
Medellin's Challenges: Tourism Opportunities or Uncontrolled Gentrification?
The increase of tourism in Medellín in the last decade is a challenge for the city, on the one hand, it generates important economic resources in the consumption and services sector, but on the other hand, it generates some challenges. Among them are:
- The increase in the prices of products and services due to the IPC adjustment, which especially affects residents, inflation is the worst tax for the city’s inhabitants, as it accentuates economic and social inequalities.
- Gentrification, refers to the displacement of residents by tourists and tourism industry workers.
- Environmental pollution is increased by increased vehicular traffic and the generation of more waste.
In summary, Medellín has experienced significant growth in tourism in recent years. This has brought with it several benefits such as the generation of employment and the dynamization of the economy. However, it has also generated some problems, such as gentrification and price increases.
How Much Money Does Foreign Tourism Generate for The Economy?
According to data from the Secretariat of Tourism of Medellín, in the first half of 2023 alone, 445,784 tourists arrived in the city, representing an increase of 22.4% over the same period in 2022. Taking into account that the average expenditure of a tourist in Medellín is US$1,000, it is estimated that tourism contributed around US$3.2 billion to the city’s GDP in 2023. This represents a 20% increase over the previous year.
El Poblado: A Case of Gentrification in Medellín
A concrete example of gentrification in Medellín is seen in the El Poblado neighborhood, which is the chief tourist destination of the city. In this neighborhood. The prices of housing, food, and services have increased considerably, which has displaced some local residents to other communes.
The city should develop public policies that promote the construction of social and affordable housing and protect the rights of local residents.
Approximate Household Budget in Medellín - IPC 2023 VS Projection 2024
To offer a budget guide for living in Medellín in 2024, we’ve compiled the following comparative table. It includes information on the commune, socioeconomic strata, price per square meter, average housing costs, and the expense of renting a modest apartment in the city. Furthermore, we’ve estimated additional costs such as utilities, transportation, education, and other living expenses. Please see the details below:
The table above considers the budget of a small family, consisting of three individuals: father, mother and child. Naturally, if the family is larger, some items may vary. It is worth noting that the Índice de Precios al Consumidor (IPC) in Medellín has historically been higher than in other cities in Colombia, so this trend is taken into account. Additionally, the final cost will depend on the lifestyle of each family because if other factors such as vacations, entertainment activities, and a 10% savings are taken into account, it may result in a higher optimal budget for some families.
Analysis of Household Budget by Socioeconomic Stratum in Medellín 2024
According to the presented table, a family residing in the Manrique commune (Stratum 1) should have a minimum income of 2,711,415 COP (approximately $678 USD), reflecting a 13% increase in the IPC compared to 2023. If the same hypothetical family resides in a Stratum 2 area such as Buenos Aires, Castilla, Popular, Santa Cruz, or Robledo, they should have an average income of 3,466,261 COP (approximately $867 USD per month).
Similarly, families in Stratum 3 areas like Aranjuez, Guayabal, Doce de Octubre, or Villahermosa require an income of 4,578,398 COP (approximately $1,145 USD monthly).
On the other hand, residents of Stratum 4 areas such as La Candelaria and Belén require a monthly income of 4,869,883 COP ($1,217 USD). Likewise, living in Laureles-Estadio (Stratum 5) requires an income of at least 7,041,750 COP (roughly $1,760 USD per month). Coming at the top of list of living costs in the city, we have the commune of El Poblado, the epicenter of foreign tourism in Medellín. El Poblado is comprised of stratum 6 neighborhoods. These families require an income of 11,211,200 pesos ($2,803 USD).
Tips To Avoid Gringo Prices in Medellín
To avoid paying higher prices for products and services in Medellín, people can follow these tips:
1. If you’re an expatriate and don’t care for learning Spanish, that’s fine. You will, however, probably end up paying more than someone who can speak the local language. Learning some Spanish isn’t a bad idea and will help you get a better deal here, generally saving you more money than an expatriate who only speaks English.
2. Visit local markets and craft fairs.
3. Negotiate prices with street vendors and small businesses.
4. Compare prices at different establishments.
5. Consume products and services from local entrepreneurs and small businesses.
Conclusions
Stratification in Medellín is a determining factor in the cost of living and the increase of the Indice de Precios al Consumidor (IPC) every year, so the wealthier sectors require more money to live in the higher strata, evidently when analyzing these figures we see that it is not so bad to live in an area of lower socioeconomic strata, because it is possible to live with less economic effort.
Despite the growing inflation in the city. Medellín continues to have a considerably lower cost of living than other cities in the Americas and a good standard of living compared to other South American and Caribbean nations.
The increase in the IPC in Colombia and the city of Medellín in 2024 will have a significant impact on the households of the city’s inhabitants. Citizens and expatriates must be informed about this impact and take steps to mitigate it.
Questions, comments? Contact me today and I will be happy to discuss any of these issues further with you.
