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Bank outlines inflation risks

 

Malawi Stock Exchange (MSE)-listed National Bank of Malawi (NBM) has said stickiness in non-food inflation, which only declined by five percentage points in 2017, poses an upside risk to attaining the five percent inflation rate being targeted by monetary authorities.

Malawi recorded a headline inflation of 7.1 percent in December 2017, representing a decline of 0.6 percent from the previous month while urban and rural inflation rates in the month stood at 6.8 percent and 7.6 percent respectively.

Overall non-food inflation has declined from 15 percent in January 2017 to 10 percent in December 2017, while food inflation declined from 21 percent to 4.3 percent over the same time period.

Annual average headline inflation declined from 21.7 percent posted in 2016 to 11.5 percent in 2017. Ostensibly, the decline in food inflation has been the major driving factor in the downward trajectory taken by inflation in the just ended year.

In its February Economic Newsletter, NBM observes that while more monetary tightening may, therefore, be expected in 2018 to achieve this target, the recent electricity tariff hike, coupled with pressure to increase liquid petroleum product prices and rising maize prices, remain a risk to attaining the target.

“This upward pressure in non-food inflation is likely to intensify with the approved 24 percent electricity tariff hike coupled with pressure to increase liquid petroleum product prices with the adoption of more expensive premium environmentally friendly liquid fuel products and the inclusion of Jet –A1 fuel in the Fuel Price Stabilisation Fund.

“The gains accrued in 2017 arising from low food prices are also in danger of being eroded with maize prices that have increased by 40 percent thus far in 2018 due to expected low harvest as a result of the army worm outbreak and intermittent rainfall which has affected an estimated 645 hectares according to the Ministry of Agriculture,” says the bank in the newsletter.

Commenting on the next Monetary Policy Committee (MPC) meeting scheduled for next month, the bank says it expects the committee to maintain interest rates at current levels, given the expected increase in inflation at the turn of the year as alluded to above, depending on the actual inflation outturns in the first quota of 2018.

The bank has since projected a stable kwacha at about K725 against the United States dollar.

In a separate interview, Economics Association of Malawi (Ecama) executive director Maleka Thula said while the increase in maize prices has the potential to reverse the path of inflation dynamics in the country, the actual impact remains unclear in the meantime. n

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