RBM sees govt, partners moving in to suppress prices

The Reserve Bank of Malawi (RBM) hopes that government and development partners will suppress inflation by distributing food to complement monetary policy interventions.

RBM spokesperson Mark Lungu said this on Tuesday in the context of the continued rise in the inflation rate, which peaked at 33.7 percent in July from 33.3 percent the previous month, according to the National Statistical Office (NSO).

He said inflation, the general rise in the prices of goods and services, has remained high largely on account of rising food prices.

Said Lungu: “Our expectation is that there will be interventions from government and other organisations to supply food to areas with deficits and that would be critical to contain food Inflation.”

He said non-food inflation despite being high, has been stable for close to a year on account of tight monetary policy.

Lungu said tightening money supply will continue for now until inflation begins to come down, a scenario that promises increasing cost of borrowing.

Prices of maize, which influences the direction of inflation has continued to rise. For instance, a kilogramme (kg) of maize costs between K760 and K840 per kg, which is above the K650 minimum price set by government in May.

Grain Traders and Processors Association of Malawi president Grace Mijiga-Mhango foresees a worse scenario in the lean period that spans between November and February, adding that this calls for government intervention.

She said: “I have to say that as a country we are taking things lightly. For us, we saw this as early as last December that we would not produce enough. Although government came up with figures that did not make sense, it was clear that we would have this problem.”

Mijiga-Mhango explained that the current food supplies are complemented by imports from Tanzania, but there is increasing competition from the Democratic Republic of Congo and other countries that are also buying maize from Tanzania.

“That will mean we will have to import the maize from markets outside Africa, which will be more expensive and since those markets are far away, it also takes too long to bring the maize to Malawi,” she said.

With the gloomy outlook of the inflation, the industry will continue to operate under a hostile situation which limits industrial output, according to economic experts.

An entrepreneurship expert, Ferdinand Mchacha, said in an interview that the high inflation rate is exerting enormous pressures on the cost of doing business in Malawi.

He said: “The 42.9 percent food inflation rate is wiping out the value for salaries for most employees resulting in demands for salary increments. This is pushing up production costs across various industries.

He said with the current inflation rate, the interest rates will remain high in the short-to-medium-term, resulting in high cost of financing projects and most of the companies will continue delaying new projects that could have boosted up production and grow the economy.

Economic expert Cosmas Chigwe said in an interview on Tuesday that inflation will negate consumer spending abilities.

He said: “High inflation erodes purchasing power, leading to reduced consumer demand. Industries that rely on domestic consumption, particularly non-essential goods, will likely see a downturn in sales, leading to potential cutbacks in production and employment.”

A decline in food production from 3.5 million metric tonnes (MT) to 2.9 million MT has not only caused food supply issues, but has also forced authorities to revise growth projection from 3.6 percent to 2.3 percent in 2024.n

upward adjustment of fuel could negate the positive effects caused by the subsidies. the reforms considering that an

He said: “Lower fuel costs stimulate growth by lowering costs and boosting spending. They also help to contain inflation considering the weight of fuel price on non-food inflation in the country.

“But we need to have a long-term strategy to contain the pressure on fiscal space and local foreign exchange reserves.”

Nyirongo urged Mera to consider boosting investment in hybrid fuels, which are cheaper and could potentially lessen the pressure posed by traditional diesel and petrol.

Economics Association of Malawi acting president Bertha Bangara-Chikadza, in an interview on Wednesday, urged the government to put on hold radical reforms on fuel pricing models until local inflation, currently at 33.6 percent, moderates to a manageable level.

“We recommend that government should only introduce these price adjustments once the foreign exchange challenges have improved to ensure that the country is not made worse-off,” she said.

On the proposed solutions to the fuel challenges, Bangara-Chikadza, who is also an economics lecturer at the University of Malawi, called for investment in public transport infrastructure to reduce dependence on personal vehicles.

Adequate investment in infrastructure in the long-term could ease the pressure on vehicle imports in the short to medium-term, according to the expert, and if managed well, it could create conditions to reduce pressure on forex in the short-to-medium-term.