Monetary Policy - Inflation To Tick Higher Amid Higher Commodity Prices - JUNE 2017


BMI View: Inflation has shown signs of picking up, and we expect rising supply-side pressures to lead to a gradual rise in headline inflation in Timor-Leste. In addition, the recovery in food and fuel prices as well as the likely rise in government spending in the run up to the parliamentary elections in July will place upside pressures on inflation. We therefore maintain our average 2017 inflation forecast at 2.2%.

Timor-Leste has emerged from deflation and we expect inflationary pressures to continue rising amid higher food and fuel prices. With the country importing most of its food supplies, higher global food prices will likely lead to an uptick in imported inflation. In addition, the election of Francisco Guterres from Fretilin (the second largest party) suggests that the ruling coalition is likely to remain in power in the upcoming parliamentary elections in July. However, we expect the elections to lead to an increase in government spending as the government seeks to ensure its return to power, which will place upside pressures on inflation. As such, we maintain our forecast for inflation to average 2.2% in 2017 (compared to -1.3% in 2016).

CPI To Continue Rising Amid Higher Commodity Prices

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