The National Bureau of Statistics is likely to release its December inflation data this week. Based on analysts survey and regression model, analysts at Financial Derivatives said headline inflation is expected to increase by 0.51 per cent to 15.4 per cent in December 2020.
This will be the highest level in three years. The continued rise in the general price level is driven largely by forex rationing, output and productivity constraints, higher logistics and distribution costs.
The comforting news is that the rate of increase in inflation is expected to decelerate, which means higher inflation at a slower rate. This could be interpreted to mean that the re-opening of the land borders and the harvest is beginning to taper inflationary pressures.
Also worth mentioning is a possible decline in the month-on-month inflation to 1.2 per cent (annualized 16.71 per cent) from 1.6 per cent (annualized 21.17 per cent) in November.
The survey also reveals a reduction in aggregate demand in December 2020 relative to 2019. Disposable income has been negatively affected by the electricity tariff hike, general reductions in subsidies and improved tax mobilization.
A peer group comparison shows that countries that maintain interest rates higher than the rate of inflation tend to have a faster pace of economic recovery and sustainable macroeconomic stability.
The MPC will be meeting later this month. The continued rise in inflation will be a major consideration in the determination of the stance and the level of the MPR.
