Inflation is expected to continue in the short-term until the lean season—when Malawi may experience food shortage and price increase—Nico Asset Managers’ August 2013 report has indicated.
Nico Asset Managers, a Blantyre based investment advisory firm, in the report has argued that since food contributes 50.2 percent to national inflation, the consumer price index may start rising due to food shortages and the associated increases in food prices.
Malawi’s August inflation rate dropped further to 23.3 percent from 25.2 percent in July raising hopes for better times for both consumers and the industry through high disposable incomes.
The National Statistical Office (NSO) as posted on its Malawi Consumer Price Indices dashboard indicates that the year on year headline inflation for August 2013 dropped by 1.9 percentage point s on the month before.
NSO further indicated that the urban and rural rates are at 33.7 percent and 20.6 percent respectively.
The statistical agency also indicated that inflation has dropped to 28.9 percent from 30.7 percent in July.
However, figures released by the Ministry of Agriculture and Food Security show that maize average prices jumped by about 18 percent to K115 per kg in August from K97.70 in July.
The ministry’s data indicates that maize prices have been rising for the past three months selling at an average K85.23 in May, K86.83 in June, and K97.71 per kg in July.
The Monetary Policy Committee (MPC) during a meeting held on August 6 maintained the Reserve Bank of Malawi base lending rate at 25 percent since December despite a decline in inflation rate since March this year.
The MPC noted that the decision was premised on the fact that inflationary risks remain on the upside.
The MPC also said it took into account developments in the global economy, the food situation in the country and latest movements in macroeconomic aggregates, as well as emerging financial market risks.
But Nico Asset Managers argues that a further decline in inflation rate hinges on food availability.
“Recent media reports have indicated that the National Food Reserve Agency (NFRA) is facing challenges to fully stock up the National Strategic Grain Reserves (NSGR) an indication that food shortages are eminent. This also raises the risk of maize hoarding as people reserve their maize to be sold during the lean season at higher prices,” reads the Nico Asset Managers report in part.
The investment advisory firm, however, notes that a decline in inflation will prompt savings, turn increase funds available for capital investments resulting in higher private sector activity and higher economic growth.