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Experts weigh in on inflation target

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Ben Kalua

Economists have expressed conflicting views on the country’s inflation target of 5 percent by next year and 3 percent by 2025.

This comes as headline inflation averaged 8.7 percent in the first three nine months of 2021.

According to statistics from the Reserve Bank of Malawi (RBM), this year, inflation was lowest in February at 8.3 percent and it was highest last month at 8.9 percent as it rose by 0.5 percent month-on-month.

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Recently, prices of commodities have been on an upwards spiral and consumers have been expressing worry the frequency of the rises.

This, according to economic think-tank, the Economics Association of Malawi, could pile pressure on the economy and derail chances of attaining the set inflation target.

In an interview, Ecama Executive Director Frank Chikuta said achieving the target is hard but not impossible if the monitory authorities can put strong measures.

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He added that, even though the country is vulnerable to imported inflation, it still has some things which can be controlled for the wellbeing of the population.

“We have control over policy directions but the only thing, maybe, is that the magnitude of the tightening may be so stringent that it may prove not beneficial to the economy to tighten by a huge magnitude but we can achieve the target,” he said.

Presenting the 2021- 22 national budget in Parliament this year, Finance Minister Felix Mlusu was optimistic, saying government is on track to attain its overarching monetary policy objective of a headline inflation rate of 5.0 percent in 2022 and 3.0 percent by 2025.

University of Malawi Economics Professor Ben Kalua said in an interview that, with the current inflation trends, the dream of achieving the target remains farfetched.

He predicts that the October inflation might be in double digits due to increase of prices of other commodities like fuel, which will reflect on the non-food component.

“There are a lot of things that we cannot control. Therefore, that target is just wishful thinking. Until we change a lot of things like heavy reliance on road transport and traditional agriculture, we cannot achieve such figures,” he said.

RBM spokesperson Ralph Tseka maintained the target was premised on medium term which may be two to three years.

“There can be swings in between but we still maintain that, in the medium term, we will achieve the set target,” Tseka said.

In 2019, RBM started implementing a three-year strategic plan in which it set an ambitious 5 percent inflation target to be achieved by the end of the first quarter of 2021.

In February last year, the central bank adopted what it calls a symmetric band of 2.0 percentage points around the point target of its inflation projection.

This means, when setting an inflation target, the central bank will aim at maintaining the rate within a range of plus or minus 2.

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