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Inflation basket eyebrows

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As headline inflation continues to go down, recorded at 8.4 percent as at the end of September, there are fears that the figures may not be an accurate reflection of the spending lifestyles of the average consumer in Malawi.

For the past 14 months, inflation has slowed down, hitting single digit in August. This was the first time in six years for the country to record such a milestone.

Malawi’s inflation is largely maize driven with food inflation accounting for 50.1 percent of the weightage in the basket otherwise known as the Consumer Price Index (CPI).

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Now more calls are coming to the fore to revisit the CPI, particularly the composition and weightage of the basket to ensure that inflation trends are in tandem with the situation on the ground.

Arguments are that the recent trend in inflation is on account of excess supply of maize in 2017 leading to a reduction in maize prices from K250 to around K90 a kilogramme in some parts of the country.

And given that maize accounts for a big weightage in the inflation basket, which comprises food and non-food items, the drastic reduction in maize prices translates in falling inflation, other things being equal.

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In its commentary, Alliance Capital Limited observed that what this means is that that while the prices of non-food items have been rising, the magnitude of their rise, compounded by their weightage in the inflation basket, has been offset by the decrease in prices of food items, in particular maize.

“In short, the recent trend in inflation has been maize driven coupled with such other factors as stability in the exchange rate,” the firm said.

Comparatively, in other African countries like Uganda, food inflation accounts for about 24 percent of the weightage while in Kenya, the percentage is at 36.

“It is worth noting that the drop of inflation on account of reduced maize prices means that farmers are suffering inflation related losses. Farmers in most cases buy inputs when inflation is high only to sell their produce at such low prices that are being attributed to the low inflation,” Alliance Capital said.

Going forward, the firm suggests that government should aim at maintaining low inflation even during the lean season when farmers purchase inputs in order to cushion the farmers from inflation related losses.

In a separate interview, Chancellor College Economics professor, Ben Kalua, said such review would need to be based on market research to establish the spending patterns of people in the urban setting as well as rural homesteads.

Kalua further said demographic factors, such as income levels, would also be key to the review and whether or not to add new measures to the current CPI.

“Each group will have their own inflation basket,” he said.

When contacted, National Statistical Office Price Statistician, Imran Chiosa, said the inflation basket is renewed after every five years and that the new review is scheduled for 2018.

Chiosa said NSO is already working on rebasing the components of the CPI as it realises that spending patterns are subject to change.

“We already did an integrated household survey from April 2016 to March this year and we are on course to rebase the weightage series,” he said.

For a good part of last year, Malawi’s inflation was seen to be the highest in the Common Market for Eastern and Southern Africa, making it higher for consumers in Malawi to pay for goods and services as compared to the other 25 countries that make up the regional trading bloc.

But although inflation has been decelerating, prices of goods and services have either stagnated or are still rising.

Economists describe such a status as a disinflation, where prices of goods and services do not decline in real terms but consumers only experience a slowdown in price increases.

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