Box 1.The recent behavior of the rent CPI in Colombia

Rent is the most important CPI component for Colombian households, representing approximately one-fourth of the household's index expenditures.Price increases for this component exhibit signifcant inertia because they are indexed to the headline infation of the prior year.In turn, this introduces a greater persistence to infationary phenomena, slows down the convergence of infation to the target and, consequently, could result in higher costs of monetary policy actions concerning economic activity. 1 In recent years, the rent CPI has shown high yearly adjustments, followed by a slow deceleration of these prices.In September 2024, year-on-year change was 7.9% for this measure, amid a backdrop of high headline infation indexation (well above 3%), the reversal of some temporary rent relief measures adopted during the pandemic, 2 and a stagnant new and used housing market, among other factors.The combined effect of the latter has placed upward pressure on rents, thus limiting the possibility for annual prices in the services basket to assume a downward trajectory and contributing to maintaining headline and core infation at levels above the target.This box describes the rental market in Colombia, its measurement relative to consumer prices and its recent behavior in light of the evolution of some of its determinants.