Oxfam Report: Inflation Disproportionately Affects Poor Households in Morocco

Rabat – Morocco’s “inflationary spiral” is hitting the poorest households hardest, as more people fall below the poverty line, asserts a new report from Oxfam, an international human rights NGO.

Inflation in Morocco has been on the rise for the past three years due to the compounding effect of multiple crises. The COVID-19 pandemic, the war in Ukraine, and a historic drought have led to a dramatic rise in inflation and a surge in poverty rates, particularly among the most vulnerable segments of the population.

According to reports from the High Commission for Planning (HCP) cited in the publication, inflation reached staggering levels last September, hitting 7.9% year-on-year, and climbing to 8.2% during the first quarter of 2023.

The figures mark the highest inflation peak in the last three decades, driven primarily by a sharp increase in food prices by 16.1% and a 3% rise in non-food products.

The consequences of this inflationary trend are dire. Household budgets are facing severe constraints and the poorest households are bearing the brunt of the impact, the report says.

Oxfam further says that trade-offs between necessary expenses and daily living have become increasingly difficult, pushing a larger portion of the population toward poverty.

HCP reports indicate that poverty rates in Morocco have seen a significant uptick, particularly in rural areas, where the rate increased from 6.7% to 10.6%, compared to urban areas where it rose from 1.2% to 2.2%.

The surge in poverty has reversed years of progress in the fight against precarity, with an additional 3.2 million people falling below the poverty line and in vulnerable financial situations by the end of 2022.

The COVID-19 pandemic has exacerbated the situation, accounting for 45% of the deterioration in the social situation in Morocco, according to the HCP.

Meanwhile, the surge in prices of goods has contributed to 55% of the poverty and vulnerability among Moroccans.

The impact of inflation varies across different segments of society, with the consumption baskets of poor and rich households differing significantly.

For the poorest households, food represents nearly half of their expenditures, while housing, water, gas, and electricity account for one-third. Meanwhile, the wealthiest Moroccans are more affected by rising prices of transportation and healthcare.

The dispersion in the evolution of prices across different components of the Consumer Price Index (CPI) has also widened significantly.

The inflationary surge has heterogeneous effects on the well-being of households depending on the goods and services they consume, the report adds.

The report further explains that the impact of inflation would have been higher if the government had not maintained its subsidy system at a significant budgetary cost.

According to Morocco’s Central Bank (BAM), goods and services at regulated prices have a total weight of 22% in the consumer price index calculated by the HCP.

Additionally, according to a recent note from the Ministry of Finance, the absence of subsidies for gas, wheat, transport, and sugar would have led to a 5.9% spike in inflation.

Price stabilization for 22% of the consumption basket was, however, achieved at a substantial budgetary cost. This includes MAD 42 billion ($4.2 billion) in price subsidies for gas, sugar, and wheat in addition to MAD 5 billion ($500 million) in financial support from the State to the National Office of Electricity and Potable Water (ONEE).

Direct support for transport operators is estimated to have reached MAD 4.4 billion ($440 million). Government subsidies represent almost 3.5% of GDP, leading the country to sign an agreement with the IMF for a loan of $5 billion.