Stimulus plan: risk of inflationary bubbles

The injection into the national economy of 120 billion dirhams by the State could generate, in the medium and long term, a rise in the prices of certain categories of assets, such as housing and services (in particular education and health). Here is a summary of a note signed by CDG Capital analysts.

Is the injection of 120 billion dirhams into the national economy by the State, within the framework of the National Pact for Economic Recovery and Employment, likely to fuel inflationary pressures? CDG Capital economists believe no, at least in the short term.

“The National Pact for economic recovery and employment of 120 billion dirhams will have little impact on inflation, particularly in the short term”, underlines CDG Capital, in a recent analysis note entitled “Impacts macroeconomic policy of the National Pact for economic recovery and employment of 120 billion dirhams ”.

In their arguments, CDG Capital experts recall that the behavior of inflation in relation to monetary impulses depends on two main factors: on the one hand, the composition of the basket which reflects the consumption pattern of the target population, in particular the urban population for the case of Morocco and, on the other hand, the supply / demand confrontation and its evolution in the medium term. Regarding this last point, CDG Capital’s analysis note underlines that the production potential exceeds the level of demand.

Regarding the first point, the evolution of inflation in Morocco, followed by the Consumer Price Index (CPI), depends to a large extent on the behavior of the food component, both in terms of its weight preponderant in the structure of the basket (44.8%) than its volatility dependent on the results of the agricultural campaign.

Consequently, inflation is more exposed, in the short term, to food supply shocks than to demand or to a monetary impulse, it is pointed out. Thus, all the determining factors of domestic consumption would still be impacted by the crisis in 2021, in particular the expected rise in unemployment, and the slowness of the recovery in consumer loans.

The conjunction of these elements therefore points to a scenario which excludes overheating of prices arising from the supply / demand confrontation.

However, in the medium term, inflationary pressures on certain assets cannot be ruled out. Indeed, according to CDG capital, the stimulation of the distribution of loans, associated with low levels of lending rates, could generate an increase in the prices of certain components of non-food inflation, in particular housing and services, particularly those linked to the education and health sectors.

“The expansionary stance of monetary policy could thus generate, in the medium / long term, an increase in the prices of certain categories of assets, particularly real estate, and this following a recovery in demand for this category of goods and an easing of credit rates, ”say analysts at CDG Capital.

However, these medium / long term inflationary pressures should only have a limited impact on headline inflation, given the structure of the CPI basket. Indeed, according to the HCP, housing-related spending only represents 14% of the CPI (6% for education and 5.5% for health).

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