HEADLINE INFLATION REMAINS UNCHANGED AT 4.1%

MBABANE – Despite upward pressures, the headline inflation rate has remained unchanged at 4.1 per cent since April and this is mainly due to offsetting downward pressures.

According to the Consumer Price Index (CPI) report issued by the Central Statistical Office (CSO), the 4.1 per cent observed in May 2024 was 1.9 percentage points lower than the inflation rate of 6.0 per cent observed in May 2023). In May 2024, the inflation rate for goods was 4.4 per cent and for services, it was 3.6 per cent. However, the elevated inflation rate cast doubt on any hopes for an interest rate cut by the Central Bank of Eswatini (CBE).

In order for the bank to reach a decision to cut the interest rates, the inflation should have dropped drastically, but as it stands, it remains hard for the bank to cut the interest rate which stands at 7.50 per cent.  The month-on-month inflation rate (i.e. the percentage change in the CPI in May 2024 compared with that of April 2024) is 0.1 per cent. This inflation rate is 1.3 percentage points lower than the 1.4 per cent observed in April 2024.

According to the CPI, alcoholic beverages, tobacco and narcotics decreased from 1.1 per cent in April 2024 to 0.0 per cent in May 2024, where negative growth rates were observed mainly in tobacco products. It was further highlighted that restaurants and hotels, decreased from 5.6 per cent in April 2024 to 2.0 per cent in May 2024, where lower growth rates were observed in accommodation services. Also, housing and utilities decreased from 5.5 per cent in April 2024 to 0.0 per cent in May 2024, where zero growths were observed in actual rentals. The CBE, through its March 2024 Monetary Policy Consultative Committee Statement, forecast inflation average 4.9 per cent in 2024, and 5.2 per cent for 2025.

Forecast

When delivering his annual monetary policy statement last Thursday, CBE Governor Dr Phil Mnisi said despite upward pressures, the inflation forecast for the short-term (2024) remained unchanged from the previous projection, mainly due to offsetting downward pressures. Dr Mnisi said the overall inflation out-turn for February 2024 was lower than anticipated, consequently dampening the outlook trend, particularly the first quarter of 2024. Also, in the short-term, food inflation is expected to increase, albeit at a slower pace compared to the previous year, leading to a downward adjustment in the forecast for the first quarter of 2024, compared to earlier projections.

Global oil prices, on the other hand, are still expected to remain elevated mainly due to the extended crude oil production cuts. While the Lilangeni exchange rate closed the year at E18.80, it is still on a continuous weakening trajectory mainly driven by unfavourable economic data in South Africa, which puts upward pressure on domestic inflation. Downside pressures to the short-term inflation outlook are expected to come mainly from the lower South African inflation outlook, which remains muted when compared to the previous period. The subdued inflation in South Africa, which is transmitted to domestic inflation through the import of finished goods, is expected to lessen inflationary pressures on overall inflation in Eswatini.

However, the recent upward adjustment in fuel prices and expected utility tariff hikes are expected to exert upward pressure on inflation. Consequently, the annual average inflation forecast for 2024 is unchanged at 4.91 per cent. In the medium-term, higher oil price, slight depreciation in the Rand/Lilangeni and the expected higher food prices are expected to exact upward pressure on inflation. Consequently, the medium-term inflation forecast was revised up to 5.21 per cent (from 5.13 per cent) for 2025 and 5.37 per cent (from 5.25 per cent) for 2026.

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