Malawi inflation has continued its downward spiral with the February rate recorded at 16.1 percent, a 2.1 percentage points drop from 18.2 percent in January as food prices continue to drop.
A statement issued by the National Statistical Office (NSO) yesterday shows that the drop in inflation is largely on account of the decrease in food inflation which has eased considerably from 21.1 percent in January to 17.5 percent.
“The urban [inflation] rate and rural rate stand at 13.4 percent and 18.2 percent, respectively,” reads the NSO statement. This means prices are softer in urban than in rural areas.
The drop in inflation is a reflection of the decrease in the price of maize which, as part of the food component, has a huge weight in the consumer price index (CPI) at 50.1 percent. CPI is a basket of commodities that measures the price level of consumer goods and services purchased by households.
Maize prices have continued to drop with a 50 kilogrammes bag of maize now selling at between K8 000 and K9 500 in most markets.
The continued drop in inflation means that prices of goods and services are increasing at a decreasing rate, a development that could give a respite to consumers.
During the same period last year, according to NSO, inflation rate was at 23.4 percent and this means that prices are softer this year compared to the same period last year.
The drop in inflation could give a leeway to the Reserve Bank of Malawi (RBM) to reduce further the policy rate or bank rate, currently at 24 percent, which was revised downwards in November last year.
RBM’s stated policy is to peg policy rate above the bank rate and the continued drop in inflation is a good indicator.
Now that food inflation is going down, International Monetary Fund (IMF) economist Dong Wu Frank, in a paper dated March 2017, advised fiscal and monetary authorities to pay attention to domestic non-food market and monitor any new direction of price movement.
He argued that the non-food market could have an upper hand in the movement of inflation going forward.
In February, non-food inflation dropped by 0.4 percentage points from 15 percent to 14.6 percent, according to NSO figures. n