“Despite the disinflationary trend that has taken hold in recent months, thanks in particular to a restrictive monetary policy, both headline and core inflation are still at historically high levels that do not favour an imminent return to global macroeconomic equilibrium,” the BCT notes in a business survey published on Tuesday.
Thus, the recent medium-term forecasts of the Central Bank of Tunisia (BCT) have slightly lowered the expected inflation rate for 2019 as a whole to 6.9% from 7.3% in 2018.
“On the outlook, the gradual attenuation of price increases is expected to continue between 2020 and 2021, to reach in average 6.5% and 5.9% respectively,” the bank adds in its August 2019 note on “economic and monetary developments and medium-term prospects”.
According to the BCT, by main component, inflation in administered products is expected to remain above its usual level of 3%, driven in particular by the increase in energy prices and public tariffs.
As for the inflation of fresh food products, the decline in the supply of several products, particularly vegetables, and the increase in production and distribution costs (a large part of whose inputs are imported) would maintain price pressures.
Fresh produce prices are forecast to increase by 9% in 2019 before rising to 7% in 2020 and 5.5% in 2021.
Core inflation, as measured by the consumer price index excluding fresh and administered-priced products, is expected to be 7.6% in 2019, after reaching an all-time high of 8.2% in 2018, before gradually decelerating to 7.3% in 2020 and 6.8% in 2021.
Compared to previous projections, the new forecasts have lowered the inflation rate outlook due to the appreciation of the dinar exchange rate in recent months.
The gradual deceleration in core inflation, in the outlook, is also expected to be supported by the moderate pace of consumer demand and the restrictive monetary policy stance. “The Central Bank would remain vigilant about inflation developments in the coming period, and would make every effort to ensure that it returns to sustainable levels, using all the instruments at its disposal,” the note reads.
The gradual disinflationary trend that began a few months ago continued in July 2019 with an inflation rate of 6.5% year-on-year compared to 6.8% a month earlier. This deceleration was due to the deceleration in manufactured goods inflation (+7.7% after +8.3%) and, to a lesser extent, in services inflation (+5.2% after +5.8%). On the other hand, food prices strengthened compared to June 2019 (+6.5% after +6.0%).