Malawi’s headline inflation quickened by 0.5 percentage points to hit 35 percent in January 2024 as food prices continued to bite.
The last time inflation hovered around 35 percent was in March 2013 when it hit 35.8 percent before it started decelerating.
In an inflation bulletin on Friday the Zomba based National Statistical Office said food inflation rose from 43.5 percent in December 2023 to 44.9 percent in January while non-food inflation recorded a marginal decline from 22.8 percent in December 2023 to 22 percent in January.
In its First Monetary Policy Report released on Friday, the Reserve Bank of Malawi (RBM) says inflationary pressures are expected to intensify, due to the lagged effects of exchange rate re-alignment, higher maize prices owing to the anticipated lower maize production as well as worsening inflation expectations.
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“The projected inflation path over the forecast horizon shows a consistently less optimistic inflation outlook compared to the trajectory envisioned during the fourth MPC meeting of 2023. This follows an elevated path for both food and non-food price pressures.
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“Exchange rate developments during fourth quarter of 2023 significantly elevated the cost of imported items (raw materials and finished products), resulting in upward pressures on non-food inflation. In addition, sustained food deficit across the country continues to pile pressure on food inflation, as the lean season intensifies,” reads the report in part.
According to RBM, the food deficit followed lower harvests during the 2022/23 harvesting season following poor weather outturn, namely Cyclone Freddy and drought spells in some parts of the country.
“Furthermore, the late onset of rains during the 2023/24 farming season, coupled with announcement of a possible El Nino weather pattern, has fuelled food price speculations during the current period.
“The above developments have shifted upwards the trajectory for the inflation outlook for 2024. Inflationary pressures are expected to intensify, due to the lagged effects of exchange rate re-alignment, higher maize prices owing to the anticipated lower maize production as well as worsening inflation expectations,” RBM says.
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In its 2023 Annual Economic Report, investment management firm, Nico Asset Managers says upside risks to inflation will continue throughout 2024, largely arising from the depreciating currency, a rise in private sector wages, the impact of El Niño weather patterns on food prices, increases in utility tariffs and fiscal slippages.
It notes that the Monetary Policy Committee will continue to monitor inflation, and where necessary will increase the policy rate to contain inflation.
“Rising prices reduce the purchasing power of households and lower the consumption of important items, especially food.
“Poor households will suffer disproportionately from food inflation, given the large share of food in their consumption basket,” Nico Asset Managers says.
However, the Central bank is confident that inflation will begin to decline in the second half of the year.
In a recent interview, RBM’s Director Economic Policy and Research Kisu Simwaka said the Central bank will maintain a tight monetary policy stance to achieve a medium-term target of 5 percent.
“It has been difficult since 2020 understandably because of the disasters that we have experienced in between. In 2012 we devalued the Kwacha by about 50 percent and inflation moved from single digit to 37.9 percent in February 2013 then started coming down again to single digit between 2017 and 2018 what happened during that period?
“We kept policy rate high up to 27 percent. That helped inflation to come down to single digit, it also helped the Kwacha to stabilize without controlling it, by mid-2016. That helped reserves to start picking up and the economy to grow,” Simwaka said.
In a separate interview, Economist Marvin Banda said the RBM failed to acknowledge the damaging effects of Broad Money on inflation which was at some point 38 percent.
He wondered how they could claim to be taming inflation when M2 is that high which translates in policy rate hikes hurting the real economy by creating credit shortages felt by citizens aiming to do business.
“The target of inflation of 5 percent is blindly ambitious because as a nation we have never hit this figure. The closest we have come is 7.1 percent during the Covid pandemic which saw an expected slowdown in price as a result of the lockdown initiatives. Targeting a 5 percent inflation rate when the world is expecting more climate shocks as well as geopolitical tensions seems to be theory based and impractical, yet we hope the RBM does reach the target,” Banda said.
