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Treasury shifts inflation post

Targets 3.0% by 2025

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Betchani Tcheleni

The Treasury has shifted the goal post on headline inflation target, setting a 5.0 percent goal by 2022 from 2021 as earlier projected by the Reserve Bank of Malawi (RBM).

The finance ministry has set yet another ambitious 3.0 percent target for headline inflation by 2025.

Speaking when presenting the 2021/22 National Budget in Parliament on Friday, Finance Minister Felix Mlusu said, in 2019 and 2020, the average annual inflation rate remained within single digits, recorded at 9.4 percent and 8.6 percent, respectively.

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He projected average inflation of 7.4 percent during the nine-month financial year.

“Inflationary pressure during the fiscal year is expected to be moderated by subdued food inflation especially on account of increased maize supply,” Mlusu said.

Headline inflation is greatly affected by maize availability as the stable commodity constitutes 45 percent of the Consumer Price Index.

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The country expects a good maize harvest this year at the back of successful Affordable Input Programme implementation (AIP) which will continue in the 2021/22 but uncertainties continue to hover around exchange rate stability and fuel prices.

The lowest inflation rate Malawi has ever seen was 6.3 percent in December 2010.

Chancellor College-based economist Laston Manja, however, rated the short to medium term headline inflation projection as unrealistic.

“We were expecting things to be better now such as shocks from exchange rate but things are still bad even though we are in the harvest season which means it might not change when we go back to the farming season,” he said.

Another economist from Malawi University of Business and Applied Sciences Betchani Tchereni said realising the target would be hard as the country is always susceptible to exogenous socks.

Tchereni said the country needed to diversify the economic base first if it were to work towards containing the pressure.

In March this year, headline inflation eased for the first time in five months to 9.2 percent due to decreases in maize prices.

Last year, RBM adopted what it calls a symmetric band of 2.0 percentage points around the point target.

This means, when setting an inflation target, the central bank will aim at maintaining the rate within a range of plus or minus 2.

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