Macroeconomic Forecast Morocco

Inflation has come down in June and July since peaking at 4.1% y-o-y in May; the cost of living index was up 3.2% y-o-y but down 0.6% month-on-month in July. The reduction was largely due to a fall in the price of food, which tends to be volatile owing to seasonal factors. We continue to expect inflation to reach 3.1% this year, considerably higher than the 1% seen in 2005, primarily because of stronger domestic demand resulting from better growth. The impact of higher oil prices on consumer price inflation is mitigated by large-scale state subsidies - which are in turn a drag on the budget - but wholesale price inflation will be considerably higher. Indeed, the producer price index in the manufacturing sector rose by 9.1% in 2005, according to IMF data.

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