Central Bank in its latest Monetary Policy Report May 2023 noted that retail price pressures continued to decelerate with inflation in April recorded at six per cent (year-on-year) after peaking at 8.7 per cent in December 2022.
Food inflation slowed over February, March and April 2023 as bread and cereals, vegetable and fruit prices eased. Similarly, core inflation decelerated to 4.8 per cent.
According to the report, domestic price pressures are anticipated to ease in the short-run. Core inflation, nonetheless, may be affected by the path of wage settlements, a gradual recovery of consumer demand and possible implementation of higher utility rates. Food inflation is expected to be tempered by the slowdown in international food costs but adverse weather could lead to periodic spikes in domestic agricultural produce prices.
In the fourth quarter of 2022, the domestic energy sector recorded an increase in output. However, the non-energy sector displayed some sluggishness during that period.
According to indicators monitored by the bank, declines were observed across key sectors.
The construction sector recorded a sizeable reduction of 23.8 per cent, premised on significant falloffs in the local sales of cement and the production of mined aggregates. The manufacturing sector (excluding refining and petrochemicals) also recorded a decline of 0.6 per cent, while a falloff in activity within the electricity and water, agriculture and financial and insurance sectors was recorded.
Notwithstanding the slowdown in overall activity, expansions were recorded in transportation and storage, real estate and wholesale and retail trade sectors.
The labour market conditions improved as the unemployment rate fell to 4.7 per cent in the fourth quarter of 2022 while labour force participation rose.
In the first quarter of 2023, overall energy production remained fairly steady. Activity in the sector was affected by declines in the production of both crude oil (6.0 per cent) and natural gas at (0.4 per cent). Activity in the refining sector was affected as an improvement in the production of LNG was outweighed by a falloff in the production of natural gas liquids (NGLs). Output in the petrochemicals sector waned over the period, driven by declines in the production of ammonia (8.2 per cent) and urea (32.2 per cent). Meanwhile, methanol production improved (5.6 per cent) over the period.
The bank also kept the repo rate steady at 3.50 per cent while adjusting its open market operations to deal more flexibly with changing liquidity conditions.
In calibrating its stance, the bank took account of the potential global financial stability risks while considering the impact of unanticipated external impulses and second-round effects on domestic inflation.
Central Bank utilises the repo rate to signal to the banking system the direction in which it wishes short-term interest rates, and ultimately, the structure of interest rates, to move.
Open market operations involve the purchase and sale of government securiti
