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Inflation at its lowest level in ten years

Eight out of 10 households interviewed by the HCP report an increase in food prices in 2019 and just as many are anticipating a further increase in the next twelve months. In reality, food prices fell by 0.5% in 2019 according to the HCP which has just published the consumer price index. Inflation averaged 0.2% in 2019.

The barometer which reflects the real price trend (underlying inflation) has increased by 1%. These figures are offset from the feelings of households. The Moroccan Center for Economic Outlook has also called on the HCP on this gap.

The virtual stagnation of consumer prices is not always good news for the economy. The Central Bank aims for inflation around 2% each year, but has not always managed to reach its target. On average, consumer prices have risen 1.1% over the past ten years with a 0.2% low recorded in 2019. Core inflation has increased in the same proportions over the same period.

The positive effect of falling prices on purchasing power was quickly wiped out by stagnant wages, as companies adjusted their policies. Low inflation means the economy is lacking in strength and for many economists, it would deprive governments of the leeway to stimulate activity and reduce unemployment. In addition, it can thwart fiscal policy due to the impact on tax revenue.

The effect is direct on VAT. Income tax is sensitive to low inflation if wage increases are frozen or if jobs are destroyed. The focus of the Central Bank’s mission on the sole objective of price stability is today disputed.

Proponents of “other politics” are louder. Even in Europe where the ECB has cloned the missions of the former Bundesbank, Christine Lagarde, its president wonders aloud. She held yesterday a press conference devoted to this subject.

By category, prices in education continue to increase significantly faster than the general average with an increase of 3.1% in 2019. It is more marked for alcoholic beverages and tobacco (+15.1%), but the impact on the overall average is small due to the weight in the basket.

Last year, consumer prices rose 1.2% in Fez, 1% in Settat and 0.7% in Casablanca. On the other hand, they decreased by 0.3% in Oujda and did not budge in Agadir and Marrakech.

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