The International Monetary Fund (IMF) has maintained Malawi’s end 2014 single digit inflation target of 9.7 percent, according to the recent World Economic Outlook (WEO), however local analysts have doubted its attainment.
The IMF indicates that Malawi’s end of period inflation rate will fall from 23.5 percent in December 2013 to 9.7 percent while the annual average will fall from 28.6 percent in 2013 to 15.1 percent this year.
The fund projects 5.8 percent inflation in December 2015, with an average 6.9 percent during the year.
Earlier the IMF raised 2014 end of year inflation projections from 5.8 percent to 9.7 percent while the annual average was increased from 8.1 percent to 15.1 percent.
The IMF, in Malawi’s February 2014 country report, said inflation is programmed to fall based on revised monetary programme is based on RBM tightening monetary policy over the next few months and more aggressively sterilizing foreign exchange inflows when the tobacco season starts.
But in view of the IMF inflation estimates, analysts have argued that the projections are too ambitious bearing in mind that this is an elections year in which both government and political parties will raise their expenditures and increase money supply, a development that will consequently push up inflation.
Other analysts have also warned that the recent increases in fuel prices and utility tariffs will put pressure on the general prices of goods and services consequently adding inflationary pressures through a cost push inflation. Electricity tariffs were increased by 13.5 percent this month.
The Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira in an interview yesterday said the central bank produces its own projections but could not say whether the IMF projections were achievable.
Recently, the IMF also noted that inflation remains high with the inflation fall being complicated by the expansion of liquidity associated with RBM purchases of foreign exchange.
Liquidity levels have recently increased with weekly daily averages reaching K20 billion. Last week the liquidity levels increased to K7.7 billion a day from a daily average of K7.2 billion in the previous week.
The RBM however said that to ensure that liquidity levels do not destabilise inflation fall, the central bank will mop up excess liquidity by rolling over maturing securities in addition to issuing new securities.
Recently, Malawi’s inflation which is based on the food dominated Consumer Price Index (CPI) has been receding due to falling maize prices, Malawi’s staple.
Malawi’s year on year inflation dropped to 24 percent in March due to increased maize availability and the appreciation of the kwacha.
In Malawi’s CPI, food and non alcoholic drinks contribute about 50.2 percent to the inflation basket, housing water and electricity 14.7 percent while transportation comprises 6.6 percent.