The Reserve Bank of Malawi (RBM) has said it might be too early to conclude that lowering of headline inflation in June signals a turn-around as pressure persists.
The bank has expressed the pessimism in its June 2023 Monthly Market Intelligence report.
Headline inflation— the rate at which commodity prices change in an economy at a given period—went down in June to 27.3 percent from 29.2 percent in the preceding month, thanks to an ease in food prices.
But according to the RBM report, the observed deceleration could be a basal effect arising from the high prices of June 2022 following the reaction to the May 2022 exchange rate realignment.
“It is therefore prudent for monetary policy to remain tightened until a sustained declining trend in inflation is achieved.
“Such a position is being taken considering that low and stable inflation is necessary for attainment of sustained high economic growth that leads to welfare improvements,” the report reads.
Economist at Malawi University of Business and Applied Sciences Betchani Tchereni attributed the lowering of inflation in June to reduced demand on non-food items.
He said as the country heads toward the lean period, inflation is likely to continue fluctuating, and then rocket again.
“We should wait for the Extended Credit Facility which might give confidence to the economy which, in turn, might see good supplies of products, especially imported ones, thereby helping to reduce the high inflation rate,” Tchereni said.
In the past 24 months, inflation has been on an upward spiral, piling pressure on most other macroeconomic fundamentals as the cost of living remains elevated.
In a desperate attempt to tame the run-away inflation, RBM adopted a tight monetary policy where, among other things, it adjusted its policy rate to 22 percent in May and then to 24 percent last week.
In its 2nd Quarter Malawi Country Report issued recently, global economic think-tank, the Economist Intelligence Unit predicted Malawi’s headline inflation to average 30.6 percent in 2023.
