Tunisia's Economist Larbi Benbouhali Questions Central Bank's Ability to Contain Inflation

In a recent analysis published on his official page, economist Larbi Benbouhali has expressed concerns about the Tunisian Central Bank's (BCT) ability to sustainably control inflation in the current economic context, which he describes as "stagflation."

Inflation on the Rise

According to data cited by the National Institute of Statistics (INS), the consumer price index (CPI) has reached 5.5% in April, with the overall price level standing at 194.8 points, based on a 2015 baseline of 100. Benbouhali notes that this represents a significant cumulative increase in the general price level over the past decade, resulting in a continuous erosion of household purchasing power.

The Cost of Living Has Almost Doubled

Benbouhali estimates that the cost of living has almost doubled over the past decade, equivalent to an average annual increase of around 8.6% in Tunisian dinars. He also points out that households have lost over 20% of their real purchasing power over the past three years, a situation exacerbated by a wage increase that he considers insufficient in the face of inflation.

The Impact of Wage Increases

Reacting to the recent 5% wage increase, Benbouhali argues that it is immediately offset by a higher inflation rate, limiting its impact on living standards. He also questions the persistence of inflation despite favorable factors, such as a good agricultural season and a surplus in certain food products.

Structural Causes of Inflation

Benbouhali attributes the current situation to a combination of structural factors. He highlights the BCT's monetary policy, which he believes is constrained by indirect financing of public debt and deficits, as well as an expansion of the money supply that he considers inflationary. He also points to the parallel economy, estimated to account for around 40% of economic activity, which reduces the effectiveness of monetary control instruments.

Distribution Channels and International Pressures

Benbouhali also notes the structure of distribution channels, marked by a high number of intermediaries between producers and consumers, which contributes to the increase in retail prices. He also points to international market pressures, including the rise in energy and certain raw material prices, linked to a tense geopolitical context.

The Role of Subsidies

Benbouhali also discusses the effects of public subsidies, estimating that they can distort the reading of real inflation. He notes that subsidized products experience price increases lower than those of free-market products, creating a significant gap in the statistical measurement of the cost of living. In April, he estimates that prices of subsidized products increased by 1%, compared to 6.8% for free-market products.

A Partially Masked Reality

Benbouhali believes that this price structure partially masks the reality of inflation felt by households. He highlights that price increases are particularly marked in the food sector, with annual increases ranging from 6% to over 19% depending on the product, including meat, fish, fruits, and vegetables.

A Debt Burden at High Costs?

On the macroeconomic level, Benbouhali considers that Tunisia is facing a combination of chronic budget and trade deficits, which would force the state to resort to debt at high costs. This situation, he believes, exerts additional pressure on monetary policy and limits the Central Bank's room for maneuver.

A Restrictive Monetary Policy Ahead?

Benbouhali anticipates a restrictive monetary policy, with high interest rates that could curb investment and economic growth. He also notes that international energy tensions, linked to risks on oil and agricultural raw material flows, could maintain high inflation levels in the coming months.

Reform Pitches

Finally, Benbouhali proposes several reform paths, estimating that Tunisia must gradually reduce certain subsidies and review its public financing model. He also advocates for the use of concessionary external financing and the strengthening of foreign exchange reserves to stabilize the national currency and improve economic resilience to external shocks.