Tunisia: Inflation will fall according to BCT … but in 2019

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    According to the latest note from the Central Bank of Tunisia (BCT) entitled “Economic and Monetary Developments and Medium-Term Outlook”, recent medium-term forecasts point to continued upward pressure on consumer prices until the end of 2018, before a slight deceleration in 2019.

    On an annual average, the inflation rate should be around 7.8% in 2018 before returning to 7% in 2019.

    The BCT explained that the combination of several adverse factors has exacerbated price pressures in 2018 with effects that could extend to 2019 and beyond, as they should affect almost all price components and particularly core inflation, an indicator of the “fundamental” price trend in the medium term.

    This is expected to rise to an average of 8.1% in 2018 before easing off to stand at 7.5% in 2019.

    The upside outlook for core inflation reflects in particular the further transmission of the effects of exchange rate depreciation, increases in international commodity prices and the second-round effects of rises in energy prices and fresh food products.

    On the other hand, monetary tightening and moderate prospects for consumer demand should argue for easing price pressures.

    There is growing uncertainty about the return of inflation to its usual level in the medium term.

    Indeed, measures aimed at limiting the impact of a possible rise in international prices on domestic prices, in particular subsidies, would face severe budgetary constraints.

    In addition, exchange rate pressures are a risk factor, given their strong contribution to the surge in core inflation over the past and present period.

    Besides, a possible rise in wage costs could slow down the deceleration of inflation in the medium term.

    Finally, disruption of distribution channels are risks additional factors weighing on the outlook for inflation

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