Times Of Swaziland: INFLATION FORECAST REVISED TO 5.25%

INFLATION FORECAST REVISED TO 5.25%
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Nhlanganiso Mkhonta on 05/02/2025 09:18:00


MBABANE – The Central Bank of Eswatini has revised the country’s 2025
inflation forecast upward to 5.25 per cent, from the previous estimate of 4.87
per cent. In its inflation forecasts released yesterday, the bank cited external
and domestic factors, including United States (US) trade policies that pose
risks to exchange rates and oil prices. This revision signals potential
cost-of-living increases for households and businesses in the Kingdom of
Eswatini. Inflation refers to the rate at which the general price level of goods
and services increases over time, leading to a decrease in the purchasing power
of money. When inflation rises, consumers need more money to buy the same amount
of goods and services.
A moderate level of inflation is normal and even considered healthy for economic
growth, as it encourages spending and investment. However, high inflation can
erode savings, increase the cost-of-living and make it difficult for businesses
to plan for the future. On the other hand, deflation, which is a decrease in
prices, can also be harmful as it discourages production and investment. The
revised inflation forecast means that prices in Eswatini are expected to rise at
a faster rate than previously anticipated. This will affect key areas such as
food, transport and utilities, putting more financial pressure on consumers. The
CBE’s latest inflation report highlights several factors that have contributed
to the upward revision of inflation for 2025.
Include
These include the United States of America (USA) trade and monetary policies.
The report notes that trade policies under the current US administration could
create risks for the exchange rate and oil prices. The US is the world’s
largest economy, and its policies often have a ripple effect on global markets,
including Eswatini.When the US imposes tariffs (taxes on imports) or trade
restrictions, it can impact global supply chains and increase the cost of
imported goods. For Eswatini, which relies heavily on imports from South Africa
and other countries, higher import costs translate to higher inflation.
Additionally, the US Federal Reserve’s monetary policy plays a crucial role in
the strength of the US Dollar. The Federal Reserve (or ‘the Fed’) is the
central bank of the US, and it controls interest rates to manage inflation and
economic growth. When the Fed raises interest rates, it makes the US Dollar
stronger. A stronger US Dollar means a weaker South African Rand, which is the
currency Eswatini uses through its peg to the Common Monetary Area. A weaker
Rand leads to higher prices for imported goods and fuel, increasing inflation in
Eswatini. Another factor cited by the CBE when revising its inflation forecast
is the fact that the Rand has lost its earlier momentum against the US Dollar,
and it is expected to remain weak in the short-term.
Higher
This means Eswatini’s economy will face higher costs for imports, especially
for essential commodities like fuel and food. Since Eswatini imports most of its
goods, a weaker Rand means higher costs for consumers. Another significant
factor behind the inflation increase is the impact of the El Niño weather
phenomenon. El Niño causes extreme weather patterns, such as droughts and
floods, which can disrupt food production. The latest forecasts indicate that
Eswatini could experience lower crop yields due to prolonged dry spells. Since
agriculture plays a vital role in the country’s food supply, a poor harvest
will lead to higher food prices, contributing to inflation.
Increase
The CBE report also highlights that administered prices - which refer to
government-regulated prices for essential services - are set to increase. In
particular, the costs of electricity and water are expected to rise, adding more
pressure on households and businesses. When utilities like electricity and water
become more expensive, businesses often pass on these costs to consumers in the
form of higher prices for goods and services. This contributes to overall
inflation, making everyday expenses more costly for the average liSwati. The
inflation rate is not expected to remain constant throughout the year.