Swazi Observer

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INFLATION FORECAST REVISED UPWARDS

By KWANELE DHLADHLA | 2021-01-26

Inflation forecasts from the Central Bank of Eswatini (CBE) have been revised upwards for the short-term.

CBE explained that the upward revision was a result of a combination of higher than expected inflation out-turn in November 2020 coupled with the continuous upside factors which exerted inflationary pressures on the domestic consumer price inflation.

Among the upside factors was the delayed unwinding of the COVID-19 effects as the second wave threatens to dampen faster economic recovery.

It was mentioned that while the second wave was expected to cause significant supply side disruptions and exert upward pressure on domestic inflation, the effect was likely to be minimal as efforts to curtail the negative economic impact of the pandemic have already been rolled out.

Further, CBE said the higher than previously anticipated Brent crude oil prices arising from an expected global economic recovery in the short to medium term added to the upward pressure on inflation.

“The effect of a hike in domestic administered prices expected in the second quarter of 2021 will exert upward pressure on inflation.

On the downside, the Rand is expected to gradually appreciate throughout 2021, relieving pressure on domestic inflation,” CBE explained.

It was also mentioned that the prospect of the success of the COVID-19 vaccine especially on the regional economic recovery presents was expected to improve the inflation trajectory.

As a result, inflation rate for the first quarter of 2021 is expected to be higher at 5.04 per cent than the previous forecast of 4.82 per cent.

“The second quarter of 2021 is also revised up to 5.88 per cent from 5.86 per cent in November2020.

The annual average forecast for 2021 is therefore slightly higher at 5.42 percent than the 5.38 per cent projected in November 2020,” said CBE, which is led by Governor Majozi Sithole. In the medium term, CBE said overall inflation was forecasted to slowdown in 2022 and rise in 2023.

Meanwhile, in the medium term Brent crude oil prices were expected to gradually pickup, aligning with an expectation of a more stable global economy.

Also a stronger Rand in 2022, although with minimum pass-through to domestic inflation is expected to exert downward pressure on the domestic inflation while the expected d depreciation in 2023 is an upward risk to inflation.

Contrary, the upward adjustments on domestic administered prices are expected to somewhat exert upward pressure on overall inflation in medium term.

“Therefore, inflation forecasts for the 2022 have been slightly revised downwards to 5.25 percent from 5.29 per cent while the forecast for 2023 stands at 5.50 per cent,” added CBE.

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