Inflation slips to double digit

Four months after attaining single digit levels, Malawi’s inflation as measured by the Consumer Price Index (CPI ) has slipped back into double digits at 10.1 percent largely driven by increases in prices of both food and non-food items.

But the Reserve Bank of Malawi (RBM) argues that the outcome of inflation is consistent with projections.
This has, however, raised fears that RBM could increase its policy rate —the rate at which commercial banks borrow from the central bank as lender of last resort—at its next meeting this month which could trigger the rise in cost of borrowing from commercial banks.

For five months running, Malawi’s year-on-year inflation has been on the upward spiral with November inflation standing at 10.1 percent from 8.6 percent in June 2018.
The rise is due to increased food and non-food prices by 0.4 percent and 0.3 percent respectively to 10.8 percent and 9.5 percent, according to National Statistical Office (NSO) figures released yesterday.

The staple grain maize, which, as part of food constitutes 45.2 percent in the CPI, which measures changes in the price level of market basket of consumer goods and services, now costs an average around K10 000 per 50 kilogramme bag from an average of K5 000 in June.

Malawi Energy Regulatory Authority (Mera) also hiked the prices of petroleum products by an average of five percent, a development while Electricity Supply Corporation of Malawi (Escom) also announced a 31.8 percent electricity tariff hike over a four year period.

Economics Association of Malawi (Ecama) president Maleka Thula said yesterday the inflation outturn was expected given the recent upward revision in domestic fuel pump price, observing that if the current inflation trend is to persist, the country risks undoing the past economic gains.

Dean of social sciences at the Catholic University, Gilbert Kachamba, said there is need to have a relook on the consumer basket of urban consumers as food is having a huge weight, observing that the trend will keep rising hence no need for concern.

But RBM spokesperson Mbane Ngwira observed that all upside risks to inflation envisaged during the September 2018 Monetary Policy Committee (MPC) meeting materialised which included increases in electricity tariffs by 20 percent and fuel prices by five percent.

Overall, inflation is expected to average 9.3 percent in 2018 and 9.2 percent in 2019 (from 11.6 percent in 2017).
Ngwira said: “Inflation is expected to continue rising in the next few months and return to single digit later next year, as agricultural harvest season commence. The forecast suggest that the five percent inflation objective remains tenable in the next two years, despite inflation temporarily increasing (due to increase in utility tariffs, fuel prices and lean period effects).”

The International Monetary Fund (IMF) earlier warned that managing the volatility of inflation will take time, given Malawi’s well-known vulnerability to shocks, the expected effects of increase in electricity tariffs and fuel prices and volatile inflation expectations.

Investment and business advisory firm Nico Asset Managers in its October 2018 Economic Report observed that due to the projected increase in inflation, the monetary policy rate is not likely to reduce in the fourth quarter of 2018 and should be maintained at 16 percent.
Malawi’s inflation hit a single digit of 9.3 percent in August 2018, the first time in more than six years.