Reflecting on inflation trends
Latest figures from the National Statistical Office (NSO) show that year-on-year inflation has slightly jumped from 7.1 percent in December 2017 to 8.1 percent in January this year. The inflation rate is still holding within single digits despite a process NSO conducted to rebase the Consumer Price Index (CPI) to reflect prevailing expenditure patterns. GRACE THIPA engaged International Monetary Fund IMF) Resident Representative, JACK REE, for his insight into inflation trends.
Latest inflation statistics released by NSO show a slight jump to 8.1 percent after rebasing the CPI, should there be cause for worry?
Inflation rose from 7.1 percent in December to 8.1 percent in January and this was mainly driven by a reversal of the disinflation trend of food price, which had been foreshadowed by recent increases in maize price.
The pick-up of inflation in January is not something unexpected. While tight macroeconomic policy mix and a stable kwacha helped a lot, disinflation, since the beginning of 2017, was very much driven by the decline of food prices, which was underpinned by an extraordinarily suppressed level of maize price. And the maize price began to revert back to its historic trend led by dry spells and the fall armyworm infestation. Prolonged spells of power outages also didn’t help as costs for producing goods and providing services ramped up.
However, there are some silver linings. First, non-
food inflation continued to ease by a ½ percent in January, following a trend of steady disinflation since early last year. As a result, it finally entered the single digit range. And this is going to have some entrenchment effect on inflation expectations. Second, the consumer price index has been updated to better reflect [the] household’s consumption pattern these days—with the weighing of food decreasing a bit. This will help [in] technically mitigating the impact of the rebound of food inflation.
Going forward, what is the picture?
Going forward, risk is there of an unravelling of the gains in macroeconomic stability unless a strong, credible safeguard is put in place. The risk is real, given Malawi’s long history of inflation reversals [such as] vulnerability to shocks and spending pressures ahead of the elections.
The new ECF programme, if it materialises, will provide exactly that safeguard.
It will provide a credible mechanism to contain budget deficits on a continuous basis. It will also provide a constellation of credible policy framework to head off inflation reversal and entrench price and financial stability.
January inflation outturn proves that, while Malawi achieved remarkable results in its fight against inflation, the war is not over yet. We need to stay the course of tight fiscal and monetary policies until we fend off the forces of inflation reversal, which is looming.
