Record inflation will dampen purchasing power and growth
Accelerating prices will increase challenges in a country characterized by extremely low household confidence and high unemployment. Producers will find it difficult to pass on higher costs to a highly price-sensitive consumer base and will need to emphasize their value proposition in order to retain sales. The government may try to limit exports of key products, like it did with tomatoes in March, in order to limit inflation. Finally, deteriorating purchasing power and living standards will raise the risk of social unrest in 2022.
Overview
Morocco’s inflation rate has breached the 3% mark since December 2021, reaching 3.6% YOY in February. Soaring global fuel, coal, and grain costs have increased domestic consumer and producer prices to their highest levels since the start of the pandemic. The Moroccan dirham has depreciated 9% against the dollar since the start of the year to reach 9.82 to the dollar, leading to further inflation in the price of imports.
Our View
Inflation in Morocco will far surpass historical trends to reach 4.9% in 2022, weakening purchasing powers. Prices in Morocco are rising at the fastest rate in over a decade, as the costs of key imports skyrocket due to the fallout from the Russia-Ukraine war. Morocco imports 90% of its fuel needs, which has caused domestic prices to leap since February and pushed parliament to summon members of the energy sector to investigate the problem. Food inflation was 5.5% YOY in February, much higher than overall inflation. This trend will likely be exacerbated by a severe drought that will bring domestic wheat production to a record low this year. Producer prices have also reached their highest point since the start of the pandemic and are expected to continue growing this year due to high input prices.
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