Malawi’s headline inflation fell by 2.3 percentage points from 14.6 percent in April 2017 to 12.3 percent in May, thanks to continued improvements in food availability, the National Statistical Office (NSO) said on Wednesday.
This year’s May inflation is 9.2 percentage points better than the 21.5 percent recorded in May 2016.
According to NSO, urban inflation has eased from 12.5 percent in April 2017 to 10.3 percent while rural inflation has softened from 16.2 percent in April to 13.8 percent in May 2017.
Food inflation, according to NSO has decelerated from 14.7 percent in April 2017 to 11.2 percent while non-food inflation has fallen from14.4 percent in April to 13.5 percent in May 2017.
Analysts believe the development could provide a fertile ground for the country’s monetary authorities to induce a further cut in the policy rate, currently at 22 percent.
With interest rates hovering around 40 percent, Malawi is seen as a destination where capital is extremely expensive.
In its 5th Malawi Economic Monitor titled ‘Harnessing the Urban Economy,’ the World Bank said high interest and inflation rates have eroded the returns on private investments, as demonstrated by the increasing share of non- performing loans.
In its May 2017 Economic Brief, investment management firm, Nico Asset Managers, said non-food inflation may increase due to the possible rise in global oil prices.
“Inflation is expected to remain subdued due to the continued slow-down in food prices. Food inflationary pressures are expected to be dampened during the main harvest season.
“The increase in food availability in the country could lead to lower food inflationary pressures. Non-food inflation may increase due to the possible rise in global oil prices,” Nico Asset Managers said.
At its first Monetary Policy Committee meeting for 2017 held in March, Reserve Bank Malawi adjusted downwards its inflation projection from 16.1 percent to14.2 percent by June 2017 due to seasonal improvement in food supply, stability of the exchange rate, and low international oil prices.
“The outlook for inflation in the second half of the year will depend on fiscal outturn for 2016/17 fiscal year, and developments in the foreign exchange market,” the committee said.