Inflation rate averages 20.5 percent in 11 months

Malawi’s year-on-year headline inflation rate for 11 months to December 2022 has averaged 20.54 percent,  according to a Business News calculation.

The Reserve Bank of Malawi (RBM) projected the 2022 annual average inflation rate at 21.5 percent while Ministry of Finance and Economic Affairs’ forecast was 23.2 percent.

However, the fiscal and monetary authorities’ projection was way above the target set by the International Monetary Fund (IMF) at 26 percent and the Economist Intelligence Unit (EIU), the research and analysis division of the Economist Group, which put its target at 27.1 percent.

During the year, year-on-year headline inflation rate has been on the rise, moving from 12.1 percent in January to 13 percent in February, 14.1 percent in March, 15.7 percent in April, 19.1 percent in May and 23.5 percent in June.

The year-on-year inflation kept rising to 24.6 percent in July, 25.5 percent in August, 25.9 percent in September and 26.7 percent in October before easing to 25.8 percent in November, according to National Statistical Office (NSO) data.

Speaking in an interview yesterday, Malawi University of Business and Applied Sciences associate professor of economics Betchani Tchereni said while the projections are “quite conservative”, the trend points to an unstable 2023.

He said: “It was expected that inflation was not going to be within the single handles because of devaluation and imported inflation.

“We should expect that we will have an environment where interest rates are relatively high and 2023 may not be a wonderful year in terms of stability if we don’t do what is required.”

According to the EIU, a combination of global and domestic shocks renders monetary policy ineffective to tame the country’s runaway inflation.

IMF said the elevated annual inflation rate is due to the rising fuel, food and fertiliser prices in the year as well as depreciation of the kwacha.

RBM devalued the kwacha by 25 percent on May 27 last year.

In its recent country report, the IMF urged the central bank to ensure that reserve money growth is kept in line with the projected nominal gross domestic product growth and that the policy rate is adjusted to keep inflation at a minimum.

However, RBM Governor Wilson Banda is on record as having said that if the inflation rate continues to rise, the central bank will have no choice, but to tighten its monetary policy stance, adding that RBM is committed to maintaining the real interest rate below the growth rate to support growth.

In his 2022/23 Mid-Year Budget Review Statement, Minister of Finance and Economic Affairs Sosten Gwengwe said in 2023, headline inflation rate is projected to stabilise at an average of 21.8 percent before it starts to decline thereafter.

He said the rise in headline inflation rate was largely driven by food and imported inflation propelled by rising global fuel and food prices and the exchange rate pass through from the depreciation of the official exchange rate in May 2022.

“Inflation in turn has piled pressure on fiscal performance due to price escalations for most goods and services,” said Gwengwe.

The country’s year-on-year headline inflation rate was last in single digit at 9.8 percent in October 2021.