Malawi’s inflationary trajectory took a new twist in July 2023 as headline inflation— the rate at which commodity prices change at a given time in an economy—rose, albeit marginally, to 28.4 percent from 27.3 percent in June, on the back of rising food prices.
Figures from the National Statistical Office show that food inflation went up to 39.3 percent in July, from 37.2 percent in the preceding month. Non-food inflation was seen static at 16 percent.
For a greater part of the year, headline inflation remained on an upward spiral.
It only eased marginally and temporarily in June as food prices went down.
Maize, the country’s staple commodity, has been weighing heavily on the Consumer Price Index—an aggregate basket of goods and services used in computing inflation—as it accounts for about 45 percent.
A recent report by the International Food Policy Research Institute (Ifpri) showed that retail maize prices increased by 27 percent in July from K512 per kilogramme (kg) in the last week of June to K650 per kg or K32 500 per 50 kg bag in the last week of July.
This is above the government’s set minimum price of K500 per kg or K25, 000 per 50 kg bag and is largely attributed to skewed level of supply.
Pressure on food and non-food prices is expected to intensify as the country enters the lean period when food stocks deplete and the imports bill surges due to an elevated level of imports such as fertiliser for agriculture production.
At its recent Monetary Policy Committee meeting, the Reserve Bank of Malawi (RBM) revised upwards its annual average inflation target to 29.5 percent, the second time since Minister of Finance Sosten Gwengwe presented the 2023-24 national budget to Parliament in March.
“The MPC noted that inflationary pressures persisted during the second quarter of 2023, as evidenced by a surge in headline inflation to an average of 28.4 percent, from 26.5 percent in the first quarter, and compared to 19.4 percent for the second quarter last year.
“The outturn was driven by acceleration in food inflation, which rose to an average of 38 percent in the second quarter from 31.7 percent between January and March and compared to 25.4 percent for the second quarter of 2022,” the MPC report reads.
In an interview Sunday, Consumers Association of Malawi Executive Director John Kapito said commodity prices would continue rising, exerting extra pressure on cost of living “as there seems no solution from those in authority to curb food inflation”.
He fears for the poor section of the country which he said would be hit hard by the rocketing commodity prices.
In a separate interview, economist from Malawi University of Business and Applied Sciences Betchani Tchereni said inflationary pressure is likely going to intensify in the last half of the year as Malawi enters the lean period.
In its 2nd Quarter Malawi Country Report issued recently, global economic think-tank, the Economist Intelligence Unit (EIU), predicted Malawi’s headline inflation to average 30.6 percent in 2023.
The projection is 10.6 percentage points higher than the earlier projection of 21 percent.
The forecast is also higher than the revised 24.5 percent by RBM from the earlier projection of 18 percent.
Year-on-year inflation in the first quarter of 2023 averaged 26.5 percent.
EIU says Malawi’s foreign currency shortages are making imports of food and fuel costly and could prompt currency devaluation, which will drive up inflationary pressure.
It says from 2024 onwards, there would be a decline in commodity prices and improved availability of foreign currency to import food and fuel, which would lead to a fall in inflation.
EIU says lower input costs and increased fiscal discipline, which will reduce deficit financing through money printing, will also keep inflation contained going forward.
In its May 2023 Market Intelligence Report, the central bank hinted at maintaining a tight monetary policy stance and said there are a lot of factors that still threaten inflation rate stability.
The report indicated that prevailing high food prices are a cause for concern, as they could delay the disinflation process.
“The slow progress on inflation means that monetary policy may be needed to remain tight for an extended period of time. The RBM will therefore continue to monitor developments closely and stand ready to act, as and when appropriate,” the report reads.
