Rising food prices threaten inflation forecast—economist

University of Malwi’s Chancellor College economics professor Ben Kaluwa says with a high proportion of low-income earners having food as their main denominator in their budgets, rising food prices threatens inflation targets.

In an interview on Tuesday, he said while stable global fuel prices could help ease inflation, its contribution in the consumer price index (CPI) is low; hence, imported inflation is not a major drive of inflation in the country.

Said Kaluwa: “Fuel prices will be easing during the year, but this mostly affects transport costs. Food is the biggest denominator of inflation in Malawi because a high proportion of low income earners have food as the major thing in their budget.

“So, imported inflation is important, but is not the major driver of inflation in Malawi. It is thus difficult to meet the inflation target.”

On Friday, Reserve Bank of Malawi (RBM) revised downwards the 2020 inflation forecast to an average 8.6 percent from 9.8 percent projected during the Third MPC Meeting of 2020.

RBM figures indicate that headline inflation has declined from a peak of 11.5 percent in January 2020 to 7.1 percent in September 2020 due to relatively lower food prices compared to 2019.

“Meanwhile, non-food inflation has been low and stable anchored by relatively stable exchange rate and energy prices.

“In 2021, it is anticipated that inflation will continue to decline,” said RBM Governor Wilson Banda on Friday.

Brent crude oil prices has averaged $42.7 per barrel since July 2020.

The International Monetary Fund (IMF) projections suggest that petroleum prices will average $41.7 per barrel in 2020 and $46.7 per barrel in 2021

The development comes in the wake of increasing maize prices, currently fetching an average of K11 500 per 50 kilogramme (kg) bag, with more households being food insecure due to the impact of the Covid-19 pandemic.

In its Socio-economic Impacts of Covid-19 in Four African Countries published recently, World Bank figures show that 68 percent of the country’s population or 6.2 million people, are food insecure following concerns about household health and financial status.

For instance, 60 percent of urban workers and another 58 percent in rural areas have reported a decrease in wages while 54 percent of urban dwellers and another 52 percent of rural dwellers have had a decline in their business income.

Maize, as part of the food component, impacts the country’s economy as it constitutes 45.2 percent of the CPI.