The Reserve Bank of Malawi’s (RBM) optimistic inflation outlook projection for the near-term is yet to be tested as maize prices continue declining while prices for other goods keep rising.
As the Centre for Social Concern (CfSC) observes, on the one hand, easing food inflation could strengthen arguments for maintaining or cautiously easing the tight monetary stance, especially if headline inflation shows signs of deceleration.
On the other hand, inflationary pressures from fuel, electricity, taxes and exchange rate vulnerabilities remain strong.
Business Review observation shows that maize prices have been falling, averaging K45 000 per 50 kilogramme (kg) bag on account of increased supply.
During the same period last year, the prices were averaging K100 000 per 50kg bag.
However, on January 1, the Malawi Government has rolled out a value-added tax (VAT) increase from 16.5 to 17.5 percent and introduced a new threshold on Pay As You Earn (Paye), which have eaten into wages for workers, wiping out their disposable income.
The Malawi Government also increased fuel pump prices of petrol and diesel by an average of 41 percent and adjusted electricity tariff by 12 percent.
Given this context, CfSC economic governance officer Agness Nyirongo observes that a premature loosening of monetary policy would be risky as lower interest rates in an environment of cost-push inflation could fuel demand without addressing supply-side constraints, potentially reigniting inflationary pressures.
“The likely stance, therefore, is one of continued cautious tightness, with the central bank prioritising price stability while closely monitoring food price trends and fiscal developments,” she says.
Nyirongo says while declining maize prices are likely to temporarily ease food inflation and mcontribute to a moderation in overall inflation in the short-term, for many households the relief feels partial, fragile and not easily reversible as life itself has become more expensive.
She says: “In other words, Malawi may experience disinflation without affordability, a situation where inflation numbers improve on paper, but households continue to struggle.
“For low-income households, maize prices matter, but so does income stability. With wages largely stagnant and informal incomes highly unpredictable, K40 000 remains out of reach for many families when combined with rising costs of cooking oil, sugar, transport, rent, school fees and healthcare.”
As such, the fall in maize prices offers psychological relief more than structural relief. It slows the bleeding, but does not heal the wound.
Easing food prices impact on inflation
Malawi’s annual inflation rate eased to 28.4 percent in 2025 from 32.2 percent in 2024, buoyed by falling food prices.
Inflation declined for a second straight month in December to 26 percent from 27.9 percent in November, reflecting easing maize prices, according to National Statistical Office (NSO) data.
The annual average food inflation rate declined to 33.2 percent from 40.2 percent while non-food inflation averaged 20.7 percent, slightly lower than the 21.2 percent recorded in 2024, according to NSO.
However, the central bank noted that the increasing threat of rising non-food inflation could dampen the country’s inflation outlook as global, regional and domestic developments indicate a complex inflation environment shaped by mixed external conditions and persistent internal cost-push pressures.
RBM conceded that already, domestic fuel pump price adjustments have amplified inflation pressures despite easing food inflation.
“Although disinflation in some economies provides limited relief, rising domestic non-food inflation driven mainly by fuel price adjustments, continues to influence the inflation outlook,” said RBM in its recent Market Intelligence report.
Consumer welfare
Consumers Associaiton of Malawi executive director John Kapito observes that while the declining maize prices “is a huge relief on consumers”, maize reduction alone does not address the overall economic challenges consumers are undergoing as demand for household needs have changed over the years.
“Most goods that are also basic and cannot be replaced by lower prices of maize such as general cost of basics such as water electricity rentals, relish, transport cost of farm inputs, are giving economic pressure on consumers welfare,” he says.
CfSC data show that the national average cost of living increased sharply to K938 841 for a family of six in December 2025 from K871 175 in November 2025 due to rising food taxes and increased VAT.
The rise came barely a month after household spending declined by nine percent in October to K871 175 from K945 029 in September on account of easing maize prices.
On her part, Nyirongo adds that persistently low prices if not matched with lower input costs can discourage farmers from producing surplus maize in the next season.
She says if farmers are squeezed between low output prices and high production costs, the result could be reduced planting, threatening future food security and setting the stage for another price spike.
“Today’s relief, if poorly managed, could become tomorrow’s crisis,” she says.
Mzuzu University economics lecturer Christopher Mbukwa said relief is only on the front of the reduced maize prices or food inflation for the average consumer, but the general cost of living is likely to remain unchanged and even worse if there will be no cushions
He says: “Nevertheless, the non-food inflation is expected to rise owing to rise in fuel, electricity and VAT related costs; hence headline inflation, though lower than the past year, would still remain heightened
“The monetary policy is likely to remain tight since the net effect of the expected reduced food inflation would be cancelled out by the rising non-food inflation, so inflation is likely to remain high.”
Still hopeful?
This year, RBM projects annual average inflation at 28.9 percent, slightly above last year’s 28.4 percent rate.
RBM Deputy Governor for operations Kisu Simwaka had described the current trend as a sign that inflation has turned the corner, which could pave the way for a cut in the policy rate, currently at 26 percent, to support economic growth.
“What we want to see is inflation declining all the way to single digits. Encouragingly, the continued decline in inflation has opened the door to a possible policy rate reduction,” he said a write up posted on his Facebook page.
Simwaka hinted at the likelihood of the Monetary Policy Committee assessing progress based on inflation outcomes and outlook at its upcoming meeting to decide whether to reduce the policy rate or maintain it.
