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Industry allays fears of continued inflation rise

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Felix Mlusu

The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has expressed fears of a continued rise in inflation owing to fuel and electricity price increases, among other non-food factors.

This is coming against expectations that the country’s inflation would enjoy a downward trajectory following a bumper yield anticipated during the harvesting period.

However, since December last year, headline inflation has been on an upward trajectory and closed at 9.4 percent at the end of March 2021, the highest recorded figure since April 2020.

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But headline inflation eased to 9.2 percent in April.

An April Economic Review, which MCCCI has published, notes that, since December last year, non-food inflation has continued to be on an upward trajectory and closed at 7.0 percent in April 2021 compared to 6.9 percent recorded in March 2021.

“The increase in the price of manufactured goods is notably on account of the increase in transportation costs caused by the recent upward adjustment in domestic fuel prices and adjustment of electricity prices. The lagging effects of which are exerting upward pressures on headline inflation.

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“Overall, there exist in the economy significant inflationary threats emanating from non-food inflation due to lagging effects of upward adjustment in fuel and electricity prices and the possible effects of seigniorage caused by fiscal dominance as the government tries to find ways to finance the expenditure needs brought by the pandemic, ceteris paribus,” the review reads.

The sentiments are shared by the Reserve Bank of Malawi (RBM) which, during its second Monetary Policy Committee (MPC) meeting at the end of April this year, revised upwards inflation projections for 2021 to average 8.4 percent from 7.6 percent projected during the January MPC meeting.

The committee noted that inflation rose to an average of 8.5 percent in the first quarter of 2021 from 7.5 percent in the fourth quarter of 2020.

It further held that the increase was driven by non-food inflation, which accelerated to 6.3 percent in the first quarter from 4.6 percent in the last quarter of 2020.

“Meanwhile, inflation forecasts suggest an elevated inflation path in the period ahead compared to the first 2021 MPC forecasting round. The revision has, among other things, considered the impact of the lagged effects of the upward adjustments of fuel prices implemented on 9th March 2021 and the anticipated continued depreciation of the Kwacha,” RBM’s recent Monetary Policy Public Report reads.

The central bank has a medium-term inflation rate objective of 5 percent with a symmetric band of 2 percentage points, such that all efforts are primarily geared towards attaining this objective.

In a recent interview, Finance Minister Felix Mlusu declined to highlight the government’s plans for containing inflation, saying they would be explained in the 2021/22 national budget he is set to present to Parliament today.

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