Oil output cut threatens inflation outlook—RBM

Reserve Bank of Malawi (RBM) says the country’s inflation faces a new threat emanating from the recent decision by the Organisation of Petroleum Exporting Countries (Opec) to cut oil production which has increased prices.

The central bank projects headline inflation to rise to 24.5 percent in 2023 as opposed to 18.2 percent that was predicted during the first Monetary Policy Committee (MPC) forecasting round and compared to an average outturn of 20.9 percent for 2022.

But in its April Market Intelligence Report published on Friday, RBM rued the decision by Opec and described it as a setback that could delay the return of inflation to the central bank’s target as it would remain elevated.

Said the bank: “Though there is strong optimism for improved inflation performance, monetary policy will remain tightened to preserve any gains from the previous anti-inflation policy measures.

“This is considering that low and stable inflation, price stability is a catalyst for increased production that leads to high economic growth and is also necessary for sustained financial sector stability.”

Opec announced last month that they would effective this month to the end of the year, cut oil production by an average of one million barrels a day, a situation which has seen oil prices jump by $5 per barrel to above $85 per barrel.

Meanwhile, Malawi’s annual rate of inflation rate has been rising steadily for the past year owing to the rise in commodity prices, especially food.

Overall inflation has risen without interruption from 7.6 percent in August 2020 to 28.8 percent in April this year, according to National Statistical Office data.

Consumers Association of Malawi executive director John Kapito in an interview yesterday said any emerging risks to inflation would further affect people’s well-being and erode their disposable income.

In a separate interview yesterday, economic statistician Alick Nyasulu said that on top of the emerging risks, inflationary pressures are going to persist due to the weather shocks and low food output.

“We should expect a further increase in inflation unless there is some intervention by the government to tame the rise,” he said.

During the second MPC meeting two weeks ago, RBM Governor Wilson Banda announced a policy rate adjustment from 18 percent to 22 percent, saying the decision was in view of the inflation outlook which is likely to worsen.

In its April World Economic Outlook, the International Monetary Fund underscored the need for the central bank to ensure that monetary policy focuses on keeping inflation at a downward trajectory.