The International Monetary Fund (IMF) has said systematically forecasting inflationary trends plays a key role in managing commodity price movement.
This is contained in an IMF blog titled ‘How Managing Inflation Expectations Can Help Economies Achieve a Softer Landing’.
The Bretton Woods institution holds that expectations affect inflation and the scope for monetary policy to achieve a soft landing.
According to IMF’s statistical analysis, after the inflationary shocks in 2021 and early 2022 started unwinding late last year, inflation has been increasingly explained by near-term expectations.
- Advertisement -
“One factor that could account for this difference is the share of backward-looking versus forward-looking learners across economic groups.
- Advertisement -
“By contrast, those who are more forward-looking
form their expectations from a broader array of information that could be relevant to future economic conditions, including central bank actions and communications—they are more forward-looking learners,” reads the blog.
The IMF further tips central banks to encourage expectations to be more forward-looking through improvements in the independence, transparency, and credibility of monetary policy and by communicating more clearly and effectively.
While local authorities have been communicating and forecasting price trends, the practice has impacted little on inflation trends in recent years.
- Advertisement -
For example, the most recent Monetary Policy Committee statement indicates that inflationary pressures have strengthened, resulting in a more elevated inflation trajectory than anticipated during the previous MPC meeting.
The committee further projected headline inflation to average 29.5 percent in 2023, higher than the 24.5 percent projected during an earlier MPC meeting. It is also lower than the average 20.9 percent in 2022.
Economics Association of Malawi Executive Director Frank Chikuta said inflation for 2023 and possibly 2024 should be significantly lower than the average for 2022 because of base effects.
“Prices for 2022 and the most part of 2023 were very high; so, one would expect that inflation has picked up and, therefore, that prices would not continue rising,” Chikuta said.
Inflation has been on an upward trajectory mainly due to rising food prices in the country.
