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Food prices push up June inflation rate

A12.4 percent maize deficit relative to last year which is causing prices to rise, continues to push up year-on-year inflation rate as measured by the consumer price index (CPI).

Latest figures from National Statistical Office (NSO) show that inflation rate in June 2016 rose by 1.1 percentage points to 22.6 percent from the previous month’s 21.5 percent.

Flashback: Queuing for maize at Mchesi Admarc Depot last year
Flashback: Queuing for maize at Admarc Depot last year

During the same period last year, headline inflation rate was at 21.3 percent, which means prices of goods and services are 1.3 percentage points higher than last year.

The NSO statement said food inflation, of which maize has the largest weight, went up by two percentage point to 27.7 percent in June from the previous month’s 25.7 percent.

In the CPI, an aggregate basket for computing inflation, food, which in Malawian context is maize, has a weight of 50.1 percent. This means that any slight movement in the price either way has a bearing on inflation rate.

Figures from Ministry of Agriculture, Irrigation and Water Development show that maize output this year has been estimated at 2.4 million metric tonnes before adjusting for post-harvest losses.

At the same time, maize prices have continued to go up, with a 50 kilogramme (kg) bag of maize selling at more than K12 000.

The continued rise in inflation rate is expected to put pressure on monetary and fiscal authorities to meet the half year inflation rate target of 19.3 percent.

In its second Monetary Policy Committee (MPC) statement for 2016 released in May, Reserve Bank of Malawi (RBM) maintained the inflation rate forecast at 19.3 percent by June this year.

The central bank said the inflation rate is premised on the current food situation as announced by government and much of it will depend on the response to the crisis.

Currently, government is in the process of importing more than one million tonnes of maize to fill up the current deficit, hoping that prices of the staple grain on the market will subside.

The Malawi Government Annual Economic Report 2016 projects inflation rate to drop to an average of 19.8 percent this year and an end-period rate of 17.5 percent with food inflation projected at 23.8 percent and non-food inflation at 16 percent.

However, looking at the situation, it is looking highly unlikely that the feat could be achieved in the current environment.

In an earlier interview, Chancellor College economics professor Ben Kaluwa described the rising rate of inflation as not surprising owing to a food deficit and increasing maize prices.

Malawi’s inflation rate is one of the highest in the Common Market for Eastern and Central Africa (Comesa) under Harmonised Consumer Price Index (HCPI).

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