Imported inflation leaves little room for fiscal or monetary intervention – The North Africa Post

Morocco, as most energy import countries, is currently facing the fallouts of an import inflation that pushed up prices on the international marketplace. According to the national statistics agency, July saw prices rise to 7.7% year-on-year.

The increase has been felt mostly in food prices and transport cost which rose 12% and 18.3% year on year respectively, reflecting the country’s vulnerability to price fluctuations in the international market.

In its latest board meeting, the Central Bank kept the benchmark interest rates unchanged at an unprecedented low of 1.5%. Analysts believe that encouraging economic activity is more important than resorting to monetary measures in order to control imported inflation at this stage.

The bank argued that accommodative monetary policies were necessary because inflation was not structural, but due to imported factors.

In an article on the Middle East Institute, analyst Rachid Awraz warned of the risks of high inflation on the country’s political stability, drawing examples from the country’s recent history of protests over rising prices.

While acknowledging Morocco’s success in keeping inflation under 2% over the last few years thanks to “solid monetary policy,” Aourraz argued that the rise in GDP per capita from 2000 to 2008 has been conducive to absorbing inflationary pressure, deploring however that since 2011, the annual GDP per capita has remained static. “This stagnation can largely be explained by Morocco’s weak economic growth, as well as other factors laid out in the New Development Model.”

The New Development Model aims to double Morocco’s GDP per capita in the next 15 years.

Others argue that Morocco is unable to control inflation in the short-term due to its exogenous factors. Morocco must act to reduce its dependence upon energy and food imports, and to ease the tax burden on its middle class. This will increase its attractiveness for investments.