Malawi average inflation seen at 7.4 % in 2014

Malawi Government has projected that annual average inflation rate for the year 2014 will decelerate to 7.4 percent backed by tight monetary policy implementation.

“Mr. Speaker, Sir, inflation is expected to be relatively high for the remainder of the year. We, however, expect a sharp deceleration in inflation in 2014 to an average of 7.4 percent,” said President Joyce Banda on Friday in the State of the Nation Address marking the opening of the 2013/14 budget meeting of Parliament in the capital, Lilongwe.

Her hope on the ease of inflation comes at a time when the country’s year-on-year headline inflation rate is currently at 36.4 percent as of March, according to the National Statistical Office (NSO).

The current double-digit inflation rate reflects the high pace at which prices for goods and services in the country are increasing, hitting hard the majority of consumers in the country who are low income earners.

Thus, a likely deceleration in the average inflation to 7.4 percent as envisaged by the President could be good news to ordinary consumers as it would imply a moderation in the increase in the prices of basic goods and services which could stabilise or even bolster the purchasing power of many.

The country normally dances to the tune of cost push inflation as opposed to demand-pull inflation which is a type of inflation caused by substantial increases in the cost of important goods or services where no suitable alternative is available.

“My administration will, therefore, continue to pursue with vigour to bring down inflation and achieve a continued appreciation of the local currency to sustainable level,” said Banda.

She said building on the 2012/13 financial year, fiscal consolidation and supportive monetary policies aimed at restoring and recovering the macroeconomic environment will continue.

Banda said the fiscal anchor for the 2013/14 financial year shall be “a continued no net domestic financing with a net repayment of domestic debt of 0.5 percent of gross domestic product” which is equivalent to K6.8 billion (about $17m) by the end of the financial year.

Reserve Bank of Malawi (RBM) Governor Charles Chuka said he remains optimistic that Malawi will attain an average inflation of around 14 percent come December this year and that the country will accumulate foreign reserves of about two months of import cover.

Malawi’s average inflation for 2012 was pegged at 21.4 percent after government revised upwards the rate from 18.4 percent mentioned in the 2012/13 National Budget.