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2020: Year of stable inflation

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Betchani Tcheleni

Somewhere in September, maize prices went up by almost 22 percent and consumers felt the pinch.

Overnight, those who used to buy 25 kilogrammes (kg) of maize at K4,500 found themselves buying 22kg at the same price.

Simply put, the majority of Malawians, who depend on maize as the main food item on the menu, felt the pinch of a surge in the cost of living.

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But their feeling of pain did not spread throughout the greater part of the year, when inflation—the rate at which prices of goods change in an economy at a given time— remained low.

Since December 2019, headline inflation has been on a downward spiral, except for October 2020, when it went up by 0.4 percentage points to 7.5 percent.

At the end of its recent Monetary Policy Committee (MPC), the Reserve Bank of Malawi (RBM) resorted to slash its annual average inflation projection to 8.6 percent from 9.8 percent.

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Of course, this was expected, as headline inflation has been on a downward spiral in the recent past, thanks to stability in maize prices, given its weight in the Consumer Price Index.

In December last year, inflation closed on 11.5 percent with an annual average of 9.4 percent— about 0.2 percentage points above RBM’s projected 9.2 percent.

The food inflation rate during the year rose from 10.7 percent in January 2019 to 19.3 percent as at December 2019 while non-food inflation declined from 7.1 percent in January 2019 to 4.5 percent in December 2019.

Ironically, due to a slowdown in economic activities triggered by both domestic and the global impact of the Covid-19 pandemic, a report by Malawi Vulnerability Assessment Committee indicates that between October 2020 and March 2021, 15 percent of Malawi’s population —about 2.6 million people— will be food insecure.

The staple grain has, as part of the food component, a bearing on inflation movement as it constitutes 45.2 percent in CIP.

Unfortunately though, in the long-run, as maize stocks get depleted, pressure would mount.

While the new figures might look comforting in the interim, in the long-run, Malawi still needs to consider diversifying its consumption base.

The concept economic diversification has been nothing but rhetoric in Malawi.

As an agrarian economy, with about 80 percent of the population living in rural areas, the country is cantered upon the production, consumption and sale of agricultural commodities, largely in raw form.

The Polytechnic-based economist Betchani Tcheleni said the outlook remains mixed and murky.

“We know that many people lost jobs due to the Covid-19 pandemic and businesses are yet to pick up,” Tchereni said.

Economics Professor at the Chancellor College Ben Kalua says the recent surge in prices of goods cannot affect the average inflation.

“Fuel prices were raised recently and this one will be cost-push inflation and the average for the whole year cannot be affected by a two weeks raise of prices,” he explained.

He added that maize prices are also expected to stabilise in the coming months because of its expected availability, which will, in turn, stabilise inflation.

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