Monday, October 24, 2016/ 1.59pm /BMI Research
BMI View: Annual inflation will accelerate in Morocco in 2017, driven by rising fuel and food prices. This trend will be short-lived, as increases in commodity prices decelerate, and we thus forecast annual CPI to average 3.0% in 2017 and 2.1% in 2018.
We expect inflation in Morocco to pick up over the coming quarters, as Brent and food prices increase year-on-year. The removal of fuel and food subsidies over the past few years means that the Moroccan consumer will be hit by rising international commodity prices.
In 2018, price increases in commodities will decelerate, driving inflation down again. As a result, we forecast annual inflation to average 3.0% in 2017 and 2.1% in 2018. We believe that inflation in Morocco will remain primarily cost-push in nature over the coming years.
Aggregate demand will increase on the back of rising foreign demand for Moroccan goods, but this will be limited to goods that are not included in the Moroccan consumer price inflation (CPI) basket, in particular autos and aeronautics merchandises.
Rather, the CPI will remain overwhelmingly exposed to food and energy (50% of the CPI basket), which Morocco imports.
As a result, inflation will follow commodity price movements. This is already happening: in June, headline inflation accelerated to 2.3% y-o-y as food prices rose by 4.4%, before decelerating to 1.5% in July as inflation in food prices fell to 2.7% y-o-y.
The removal of food and fuel subsidies over the past two years by the Moroccan government means that the Moroccan consumer will be exposed to fluctuations in international prices. We do not believe that the incumbent government will backtrack on subsidy reforms when prices increase.
The Justice and Development Party (PJD) will be facing inflationary pressures after its forecasted victory in the October 2016 legislative elections (see 'Local Elections Pave Way For Renewed PJD Victory In 2016', September 15 2015), and it will therefore be free from electoral pressures at least throughout 2017 (the Assembly of Representatives is elected for a five-year term and no other election is currently planned for 2017).
In addition, Prime Minister Benkirane has announced that his government will push ahead with fiscal consolidation, meaning that reintroducing food and fuel subsidies is off the cards.
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