The Reserve Bank of Malawi (RBM) has reiterated that inflation will take a downward trajectory in coming months as food availability improves following the start of the harvest period.
Malawi witnessed a turnaround in inflation rate in February, dropping from 35 percent in January to 33.5 percent largely on account of developments in the food inflation as non-food inflation.
In February, food inflation decelerated to 42 percent from 44.9 percent in January.
In an interview at the weekend, RBM Deputy Governor (Economics and Regulation) MacDonald Mafuta Mwale said the slowdown reflected the significant drop in maize prices by 12 percent and averaged K771 per kilogramme (kg) in February 2024 from K880 per kg observed in January 2024.
Mafuta Mwale said the development was the biggest since May 2023, reflecting increased availability of maize as a result of government’s food distribution efforts through the Department of Disaster Management Affairs.
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“The drop in the overall inflation is a welcome development and has raised hope that the inflation rate could be heading in the right direction. We expect the downward trajectory in inflation to continue for a while on account of the onset of the agriculture marketing season, when availability of food items, including maize, will lead to further reduction of prices,” Mafuta Mwale said.
He observed that, depending on continued government activities in ensuring food availability, especially in the Southern Region, inflation is expected to drop all the way to 18 percent in December 2024 on its way to a single digit of 9.8 percent in December 2025.
However, Mafuta Mwale acknowledged that the path to single digit inflation will likely be winding and bumpy due to the uncertain impact of the El Nino weather conditions, wage increase demands and fuel price developments on the international scene.
In its February 2024 Economic Report, portfolio management firm Nico Asset Managers observed that maize imports from neighbouring countries may prove difficult as El Nino has impacted crop production across the region.
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“As such, if relief efforts are not ramped up, the price of food is expected to continue on its upward trajectory. This, coupled with the impact of the pass-through effects of exchange rate depreciation, [will improve the situation].
“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. Inflation is expected to remain in double digits, well above the RBM’s target of 3-7 percent in 2024, before declining to single digits in 2026,” Nico Asset Managers said.
