Falling inflation points to positives
For the first time in six years, Malawi’s inflation rate has started showing signs of hitting the single digit on account of improved food availability and a tight monetary policy employed by authorities, according to figures from the National Statistical Office (NSO).
In its consumer price indices for the month of July released yesterday, NSO says headline inflation declined by 1.1 percentage in July 2017, from 11.3 percent the previous month.
Malawi last registered a single digit inflation rate in December 2011, at 9.8 percent before picking up to 10.3 percent in January 2017.
“The urban and rural rates stand at 9.3 percent and 11.0 percent respectively. Overall, food inflation stands at 7.4 percent from 9.3 percent, in June 2017 while non-food inflation stands at 12.7 percent from 13.2 percent in June 2017,” says NSO in the report.
Malawi’s inflation surged sharply after 2012 following massive devaluation and eventual floatation of the kwacha, hitting 37.9 percent in February 2013, a development which saw consumer prices skyrocketing.
The rising inflation also pushed up interest rates in commercial banks, resulting in high non-performing loans as businesses struggled to honour their loan obligations.
In an interview with Business News yesterday, Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira said the trend is testimony that authorities target of getting single digit inflation is a reality; hinting the current inflation and projected inflation are some of the inputs into policy rate determination.
International Monetary Fund (IMF) resident representative Jack Ree said the July inflation print means the country is on the verge of breaking the mental resistance line against low and sustainable inflation.
“Between 2012 and 2016, Malawi’s inflation averaged 23.4 percent while the sub-Saharan Africa as a whole attained an average of 8.1 percent. An inflation environment of this sort is almost like a patient that keeps bleeding.
He said: “And we were not really able to stop the bleeding for good for more than six years now. Attaining single digits means that the economy stopped bleeding and is ready for recovery at last.”
Economics Associations of Malawi (Ecama) president Henry Kachaje said if this trend is sustained, the country will have a positive relationship with reduction of interest rates or at least a stabilisation of the prevailing interest rates.
“This might not necessarily lead to reduction of prevailing prices of essential goods and services, but will most likely help stabilise prices which will ease the cost of living,” said Kachaje.
Catholic University head of economics Gilbert Kachamba said both consumers and business community will be able to make long-term plans if the low inflation is sustainable for a long period as it has been a case with Malawi.
“Low inflation also means lower nominal and real interest rates which in turn create a conducive environment for business,” he said.
