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Inflation hits single digit

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Malawi’s headline inflation has hit single digit in August, falling by 0.9 percentage points from 10.2 percent in July to 9.3 percent in August, the National Statistical Office (NSO) has said.

This is the first time in 80 months that Malawi has recorded single digit inflation since December 2011, when inflation was at 9.8 percent.

This year’s July inflation is 13.5 percentage points better than the 22.8 percent recorded in July last year.

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“The urban and rural rates stand at 8.9 percent and 9.8 percent, respectively.

“Overall, food inflation stands at 6.2 percent from 7.4 percent in July 2017 while non-food inflation stands at 12.2 percent from 12.7 percent in July 2017,” NSO said.

Economics Association of Malawi President, Henry Kachaje, said the achievement of a single digit inflation is good news for Malawians as it means prices of goods and services would not be rising the way they were in the past.

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“It does not mean that prices will come down, but the speed of the rise in commodity prices will be reduced,” Kachaje said.

He further said the lower inflation, if sustained, could help provide a lee-way for monetary authorities to induce a further cut in the policy rate which may result in commercial banks slashing interest rates further.

A sharp fall in inflation between January and July has seen the Reserve Bank of Malawi reducing the policy rate from 24 percent to 18 percent, resulting in commercial banks slashing base lending rates to an average of 26 percent from 32 percent.

“But we need to be careful. Experience has shown that we tend to celebrate quickly. We need to think of ways of sustaining the low levels of inflation.

“We have had single digit inflation before but lack of proper ways to sustain it has resulted in the country failing to contain inflation,” Kachaje said.

Among other things, Malawi has managed to achieve low inflation due to increased food availability driven by a good harvest this year.

This, coupled with a maize export ban, has resulted in local farmers struggling to identify proper markets to sell their commodities at a profit.

Analysts have warned that failure to provide better markets for growers could act as a disincentive for them to produce more maize last year.

In its August 2017 economic report, portfolio management and advisory firm, Alliance Capital, said it expects a further drop in headline inflation.

“However, inflation will drop at a decreasing rate as we enter the lean period. We also expect RBM to continue with its liquidity management operations at the current pace to keep the level of money supply in check.

“We also expect the exchange rate to be stable,” Alliance Capital said.

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