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Reserve Bank of Malawi sees inflation averaging 9% in 2018

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By Taonga Sabola:

The Reserve Bank of Malawi (RBM) has said it expects Malawi’s inflation to average nine percent this year.

The prediction comes at a time Malawi’s inflation is threatening to run away following recent electricity and fuel price hikes which have driven up transport costs.

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In its Monetary Policy Report, released Wednesday, RBM said risks to the inflation outlook persist on account of further increases in administered prices, higher food and global oil prices and increased public sector financing requirements.

According to the report, during the second Monetary Policy Committee (MPC) meeting, two risks to the baseline projections were foreseen.

It says, among others, electricity tariffs were predicted to go up by 10 percent during third quarter of 2018 and fuel pump prices were predicted to be revised upwards by nine percent.

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“Both risks materialised in 2018Q3 albeit with varied magnitude. During the 2018 Q3 [quarter], fuel pump prices were revised upwards by an average of 9.3 percent, 0.3 percentage points higher than expected and electricity tariffs were adjusted upwards by 7.1 percent, 2.9 percentage points lower than anticipated during the second MPC of 2018. In addition, LWB revised water tariffs upwards by an average of 7.5 percent in July 2018.

“Since the risks materialised, they have now been incorporated in the current baseline forecasts. In addition, rising food and fiscal overruns have been maintained in the baseline. Therefore, the current baseline inflation projections are relatively more elevated in the short term than what was reported during second MPC,” reads part of the report.

It further says inflation in the remainder of 2018 is projected to remain above the medium term objective on account of these perceived risks.

“The MPC therefore considered that maintaining the policy rate at 16 percent will ensure that the policy stance remains adequately tight to manage these risks and ensure that inflation declines gradually towards the medium-term inflation objective of five percent,” the report says.

Early this month, the Malawi Energy Regulatory Authority (Mera) approved a 31.8 percent power tariff hike for Electricity Supply Corporation of Malawi (Escom).

Mera also raised fuel prices after the price of the commodity surged on the international market.

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