THE CENTRAL BANK has published its third quarterly bulletin in which it expects that the current inflation rate will see a “gradual and uneven” decline over the next two years.
The bulletin, which estimates and evaluates domestic economic activity each quarter, says that along with a slow decrease, the bank also anticipates “an upward pressure” on wages if the employment rate remains strong.
Under the current observations, the bank expects interests rates to fall to 3.2% and 2.3% in 2024 and 2025, respectively.
The estimate comes with the expectation that the price of energy, food and industrial goods will slow down, “offsetting more persistent upward pressure on inflation from services”.
The bulletin details that the current rate of inflation has already seen its peak, in mid-2022, and that the country is expected to “path back to lower rates of inflation” on a gradual and uneven basis.
The bank suggests that the current rate of headline inflation is largely impacted by “domestic factors”, such as the cost for services detailed previously, which it believes is “influencing” the current inflation rate.
Core inflation, which excludes the cost of energy and food, is expected to be more “persistent”, averaging 2.7% in 2025 based on current estimations made by the bank today.
Currently, the rate of headline inflation is valued at 6.3% according to the latest Consumer Price Index by the Central Statistics Office.
June 2023 was the 23rd month in-a-row where the annual increase in the CPI has been at least 5%, according to the CSO. Core inflation currently sits at a rate of 6.6% in the last 10 months.
The bank’s director of economics and statistics Robert Kelly said that while inflation is easing, its future path remains “sensitive” due to international economic activity and the “persistence of buoyant domestic demand”.
On employment, the Central Bank’s bulletin expects that wages will begin to increase, and catch up to pre-2022 levels, due to pressures placed on employers from a high level of employment.
The bank anticipates this to happen based on current observations of the unemployment rate remaining close to 4%.
Currently, the long-term unemployment rate is close to a “historic low”, with the overall rate forecasted to average 4.3% for both this and next year.
Currently, the employment rate is at its highest since records began in 1998.
Using data from the CSO, the bulletin determined that a 5.1% increase in average hourly earnings has created a 4.2% increase in this quarter, when compared to last.
While the bulletin details that public sector workers have seen the majority of these wage benefits, due to “public sector pay agreements”, it notes that the private sector has seen a 4.6% increase in earnings – the highest growth since the pandemic period.
It adds that, when compared to the second quarter of this year, the private sector has seen a small decrease (0.7%) in annual earnings. Finance and Public Admin saw the largest sectoral earning increases this quarter, of 2.6% and 2.3% respectively.
The bank notes that recent data from the Indeed job posting index insinuates that labour demand is slowing down, compared to the beginning of this year. This has been paired with a similar slowdown in “posted wage growth of 3.5 per cent in July, the lowest rate in fifteen months”.
Under current projections, the Central Bank estimates that the unemployment rate will reach 4.2% in 2025 forecasts.
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