IMPACT ON CONSUMERS, BUSINESSES

MBABANE - Rising inflation, even modestly, has tangible effects on household budgets and business operations. For consumers, the December data suggests escalating costs in essential areas such as housing, electricity and food. Notably, the food and non-alcoholic beverages category, which carries significant weight in the CPI, contributed 0.8 percentage points to the overall rate. The increase in accommodation services, coupled with higher alcohol and tobacco prices, points to shrinking disposable incomes, especially for middle and low-income households. Meanwhile, businesses face mounting operational costs, particularly in sectors reliant on imported goods, as inflation drives up input prices.

interacts

Meanwhile, inflation closely interacts with interest rates, a primary tool for managing economic stability. Typically, central banks raise interest rates to combat inflation by discouraging borrowing and slowing consumer spending. However, in Eswatini’s case, the decision is complicated by subdued economic growth and unemployment concerns. If inflation continues rising, it may prompt the MPCC to hike interest rates during its January 31 meeting, aligning with global trends among Central Bank of Eswatini (CBE) striving to anchor inflation expectations.

average

On the other hand, with Eswatini’s average inflation in 2024 standing at 4 per cent - a reduction from 5 per cent in 2023 - the CBE may opt for a cautious approach, maintaining current rates to support economic recovery. In broader economic implications, for monetary policy, the slight rise in inflation could signal emerging risks, particularly in global commodity prices and supply chain constraints, which could influence local costs. Persistent inflation may require tighter monetary policies, affecting borrowing costs for businesses and individuals. Such measures, while aiming to stabilise prices, could dampen economic activity and reduce investment in key sectors.

pivotal

The MPCC’s decision on January 31, will be pivotal. It must strike a balance between curbing inflation and fostering economic growth. Meanwhile, consumers and businesses should brace for potential changes in lending rates and continued price volatility in key categories like food and housing. Eswatini’s inflation journey in 2024 underscores the interconnectedness of global and local economic factors. As the nation looks forward to 2025, achieving price stability will be essential to maintaining economic resilience and improving living standards for all citizens.

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