Kwacha fall to push inflation to 28.6%

The depreciation of the kwacha is expected to push up the 2013 average inflation rate to 28.6 percent from 26.9 percent projected earlier, a report by Nico Asset Managers has shown.

Inflation rate turned the corner after falling since March 2013 to rise by 0.5 percentage points to 22.2 percent in October. In 2012 inflation rate averaged 21.4 percent.

Nico Asset Managers, a local investment management and advisory firm, in its November 2013 report, has further quoted the Economist Intelligence Unit (EIU) that inflation will moderate to 18.7 percent in 2014, 8.6 percent in 2014 to 2017 as productivity increases and as rising oil prices are offset by easing food prices.

But the Reserve Bank of Malawi (RBM) projects inflation to settle at 23.1 percent in December 2013, average 27.8 percent in 2013 and fall below 15 percent by June 2014. The International Monetary Fund (IMF) projects that inflation will average 26 percent in 2013 and moderate to 8.4 percent in 2014.

According to official figures, the kwacha continues to fall and experts have warned that it will continue to fall during the lean period and due to speculation.

Recently, RBM in the wake of the aid freeze of about $150 million (about K60 billion) in budget support by Malawi’s major donors, said it will tighten monetary policy in order to ensure continued improvements in the availability of foreign exchange while at the same time controlling inflation.

But the investment and advisory firm said inflation rate has started to rise as a result of increasing food costs and increasing fuel prices.

“The latest figures released by the Ministry of Agriculture and Food Security [indicate that] maize prices have risen to average at K117.95 per kg in October 2013 compared to K113.57 per kg in September 2013. Maize prices are expected to go up if Admarc maize stocks run out, which will lead to a further inflation rate rise. Fuel prices and utility prices were recently revised upwards, which will put pressure on the general prices of goods and services. This would contribute to the rising inflation,” reads the report.

The advisory firm warns that higher inflation will lead to higher prices and lower disposable incomes for both businesses and households and will lead to higher interest rates as people demand better returns.

According to the National Statistics Office (NSO) October 2013, urban inflation increased by 0.6 percentage points to 31.6 percent, rural inflation increased by 0.6 percentage points to 17.5 percent. NSO also said food inflation increased to 19.4 percent from 18.2 percent but non-food inflation fell to 23.9 percent from 24.2 percent.