Inflation expected to fall to 5.8% in Q1 of 2020 (BCT)

February 25, 2020

(TAP)-The Central Bank of Tunisia (BCT) projects a fall in the inflation rate to 5.8% in the first quarter (Q1) of 2020 (against 6.3% in Q3-2019).

The BCT specifies in a note on the economic and monetary developments and medium-term outlook, that these forecasts will be reinforced by the easing of underlying inflation, to which would be added a favourable base effect coming in particular from fresh food products.

The issuing institute also indicated that the average inflation for the whole 2020 would be around 5.3%, the same rate as that forecast for 2021.

The BCT also expects the main underlying inflation measure to continue its gradual slowdown in Q1-2020 to 5.9% on average compared to 6.5% in Q4-2019.

In January 2020, the inflation rate continued its downward trend to stand at 5.9% year-on-year, after 6.1% in December 2019 and 7.1% a year earlier.

The bank says that the inflation rate rose by 6.7% in 2019 and peaked at 7.3% in 2018.

The BCT’s estimates indicate that the pace of the consumer price growth will continue to slow down in the coming months.

It points out that administered products, the main components of inflation, will continue its upward trend in the first four months of 2020, reaching a historical level of around 5.5% due to the price growth of some administered products.

The inflation of administered products, adds the same note, should gradually ease to around 3.9% for 2020 as a whole and 2.7% in 2021, after reaching historically high levels during the last two years (4.6% in 2018 and 4.7% in 2019).

On the other hand, the fresh food inflation is expected to drop gradually from 8.3% in 2019 to 6% in 2020 and 5% in 2021.

The gradual increase of production and the absence of significant demand pressures should contribute to the deceleration of this component of consumer prices.

The core inflation, as measured by the consumer price index excluding fresh food and products at administered prices, is expected to gradually fall to 5.8% on average in 2020, after 7.2% in 2019.

This deceleration would be helped by the recent and past appreciation of the dinar exchange rate and the moderate outlook for demand, as well as the significant contribution of the fall in olive oil prices.

On the other hand, other inflationary factors should slow down the further deceleration of underlying inflation in 2021, such as the upward trend of international prices of the main commodities, the pressures on the State budget and the balance of payments.

Recent forecasts suggest that the core inflation will rise to 6.3% on average in 2021.

The persistence of core inflation at still high levels in the short and medium term despite some easing and the risks surrounding the future path of inflation, call for vigilance.

Both endogenous and exogenous factors could contribute to the rise in inflation, including higher international prices for key food, oil, natural gas and commodity prices.

To this are added, the rise in the cost of production and the increase in wages in the public and private sectors, the renewed pressure on the current account balance and on exchange prices and the increase in the external debt service in Tunisia.


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