“In February 2024, food prices increased by 10.2% year-on-year. This increase was mainly due to a 35% rise in the price of coffee powder, a 22.5% rise in the price of sheepmeat, a 21.8% rise in the price of edible oils, an 18.5% rise in the price of spices, a 15.2% rise in the price of fresh vegetables, a 12.2% rise in the price of beef and an 11.7% rise in the price of fresh fish”.
These are the words of the latest press release from the National Institute of Statistics (INS), referring to the prices of the main items in the bread basket of Tunisian housewives, and focusing on an “inflation rate on a downward trend at 7.5% compared with 7.8% in January”. And we are almost forced to believe in a steady decrease of inflation.
Falling inflation: a monetary placebo effect
How can this be, when no one has felt the slightest effect of this infinitesimal 0.3 basis point fall in inflation, which is merely the effect of the slight difference between free products, or those not regulated by the Ministry of Trade and those heavily regulated by the same ministry.
In addition, the core inflation rate (excluding food and energy) rose to 7% from 6.8% in the previous month. It was therefore easy for the Ministry of Trade to exert even the slightest pressure on regulated prices in order to (automatically?) affect inflation and declare it to be on a downward trend, despite the fact that the whole of Tunisia knows that Ramadan is the month of excessive consumption par excellence. What’s more, unregulated products account for 73.5% of the consumer basket compiled by the INS, while the weight of products controlled by the ministry is only 26.5%.
So has inflation really fallen, as economists and analysts predicted, even those at the Central Bank of Tunisia in El Abassi’s day? Or could it really be a success story, inexplicable given the 10% rise in food prices, in the drumbeat of the pre-election period? Or could it simply be a monetary effect, far from the markets where ordinary people buy their supplies, who hardly feel this alleged fall?
A monetary effect, nothing more at the corner market!
In the BCT’s economic report for November 2023 (the last one to date, pending the first one in the Nouri era), it was already stated that “the BCT’s latest forecasts point to a further gradual deceleration in the rate of increase in consumer prices in the period ahead. This deceleration would be supported by the continued unwinding of the effects of earlier increases in international prices and the easing of demand pressures”.
The BCT goes on to say that “given the intensification of price pressures and the clear upward trend in inflation that will characterize late 2021 and all of 2022, the BCT has initiated a cycle of monetary tightening in 2022.
The increases in the key rate are intended to reduce the pressure on prices from demand”.
In this respect, it should be pointed out that this is the monetary policy conducted by the BCT as the lead institution, but also by the ministries concerned by the issue. As a result, it was an exchange between experts which led, in particular, to the policies to be followed. And among these, those relating to monetary policy and specifically monetary tightening. The procrastination that followed was due, by correlation, to the “break” with the IMF.
In the same note, the BCT added that it was “the output gap, which is in essence the measure of original inflationary pressures, which has eased to below 1% since the 2nd quarter of 2023. According to the BCT’s latest forecasts, the output gap should close again in the last quarter of 2023, before moving into negative territory from the first quarter of 2024, which would favor a continued deceleration in inflation in 2024”. This explains what we call falling inflation!
The BCT had already (pre)said: “on an annual basis, the inflation rate would settle at around 9.4% in 2023, before easing to 7.7% in 2024”. But this was merely an induced effect of monetary policy, which, if changed, would change everything.
Who would benefit from the ‘crime’?
One of these experts woke us up early on the morning of Wednesday, March 6, 2024 to tell us that an acting CEO of a state-owned bank was going to be able to fly off to a meeting abroad with another bank in very bad shape, despite being banned from one of the ‘S’ lists, as it seems there are several. Our expert presented this as an indication of the change in attitude of the powers that be towards public figures with links to the world of finance or business.
Secondly, and more importantly, to tell us about the infinitesimal fall in inflation as an indicator of a possible cut in the BCT’s key interest rate and even an improbable switch to fixing the exchange rate. And the link between the two ‘infoxes’ is clearly populist in intent!
We checked with our source and discovered that, for the moment, no meeting of the BCT’s Executive Board has been scheduled, and that the preparatory work, in particular the Monetary Policy Committee (CPM), has not even been envisaged yet, as has the highly improbable move to Fixing, which is not how things are decided at the BCT.
Our source affirms that it is a meticulous and lengthy process of expert appraisal which leads to proposals for the conduct of monetary policy, the tip of the iceberg of which is the key rate. The various scenarios are then studied and scrutinized before being presented to the Executive Board members. Our source also points out that the Executive Board members include a representative of the Ministry of Finance and the Ministry of the Economy and Planning, as well as independent members!
As for the foreign exchange market, the BCT keeps a close eye on the smooth running of this market, which is monitored but not remote-controlled. And if we look at the curve of exchange rate variations, we can quickly see that it is the euro-dollar duality that takes precedence. Who would benefit from a fall in the TND in an over-liquid market (daily banknotes in circulation at TND 21,219 million), and which uses its “Soft-Power” agents to lower it, without any concern for the purchasing power of the citizen?
Nouri and the siren sound
It should be remembered that the era of Marouane El Abassi at the BCT, with a monetary policy that favored the fight against inflation by using the TND to stimulate credit growth, was never popular with the country’s economic operators, who do not like a high TND and who develop in line with an inflation that is good for their prices.
And as is the case everywhere in the business world, these operators have their own ‘soft power’ agents, or even lobbyists, to create the necessary expectations and thus hope to force certain economic decisions that suit their business. And this soft power has been in full swing since the new governor of the BCT took office.
Fethi Zouhair Nouri, a former advisor to UTICA and a long-standing member of the Economic and Social Council, understands better than most the importance of this first decision, which will set the tone for his term of office. Aware of the situation of economic operators, but also of the social dimension in a context of lack of visibility, the Governor of the BCT and his Executive Board should, in principle, remain impervious to this siren song.
