Firm projects 2019 inflation rate at 8.5%, outlines risks

Investment and portfolio management firm Alliance Capital Limited (ACL) says it projects 2019 inflation to average 8.5 percent in 2019 on the back of better food supply, a stable currency, stable fuel prices and tight fiscal and monetary policies.

The firm, in its 2018 Annual Economic Report, has since acknowledged upside risks to inflation. “Upside risks to inflation exist. The start of the 2018/19 rainfall season has been characterised by below-average and erratic rainfall, especially in Central and Southern areas. This has resulted in limited agricultural activities. National maize grain prices will likely follow normal season trends, although above last year’s prices.

Ree: depend on what happens to the fiscal management

“Prices will trend slightly above the five-year average. We expect inflation to average 8.5 percent in 2019 on the back of better food supply, a stable currency, stable fuel prices and tight fiscal and monetary policies,” reads the report in part.

Maize, as part of food, constitutes 45.2 percent of the Consumer Price Index (CPI), which measures changes in the price level of market basket of consumer goods and services. A 50kg bag of maize now costs an average of K10 000 from an average of K5 000 in June 2018.

Inflation is a macroeconomic variable, which together with interest rates and exchange rates, give an indication of stability of an economy.

Malawi’s annual headline inflation rate for 2018 was recorded at 9.2 percent, which is below the Reserve Bank of Malawi (RBM) projected target of 9.3 percent and in line with a forecast of attaining single digit inflation by the central bank.

Last month, the International Monetary Fund (IMF) projected 2019 annual inflation rate at 8.9 percent whose success largely dwells on fiscal management.

IMF resident representative Jack Ree said the good inflation footprint in 2018 indicates that this target is achievable. But he said it will take a lot of political will to lean against the pressures for spending.

“Whether the Reserve Bank of Malawi [RBM] can maintain low and stable inflation will very much depend on what happens to the fiscal management, especially in the run-up to the elections. Track records tell a lot about who we are,” he said.

RBM spokesperson Mbane Ngwira is on record as having said while the risks ahead are not of the magnitude that we faced in 2018, the main risk that we see is the performance of the agricultural sector.

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