World Bank speaks on inflation outlook

Sees pressure from weak currency, rising food price


The World Bank has said headline inflation remained persistently high in Malawi and most of its peer countries in the region mainly due to elevated food prices and weaker currencies, factors requiring deliberate policy intervention to address.

The Bretton Woods institution says this in its latest bi-annual publication, which analyses the short term economic prospects for the continent and current development challenges, the Africa’s Purse.

Figures presented show that inflation in sub-Saharan Africa accelerated in 2022 to 9.2 percent, from 4.5 percent in 2021.


“Rising food and fuel prices as well as the depreciation of the exchange rate were the main drivers of inflationary pressures in the region—and, particularly, in countries like Ghana, Sudan and Malawi,” says the World Bank in the Report.

In Malawi, where structural and other domestic challenges are long-time problems, inflation trends are largely affected by exogenous shocks.

During a greater part of 2022, inflation remained on an upward spiral, closing the year at 25.4 percent in December, with the annual average rate seen at 21 percent.


But the inflationary trajectory took a new twist in January 2023, as the headline inflation rose, albeit marginally, to 25.9 percent.

During the first quarter of 2023, headline inflation remained on an upward trajectory, seen at 26.7 percent in February.

Among other things, the World Bank recommends coordination of monetary and fiscal policy to anchor inflationary expectations.

The Bretton Woods institution says headline inflation remains above the ceiling of the central bank target bands for most countries including Malawi.

It, however, says the slowdown in global demand, declining commodity prices, and the effects of the monetary policy tightening across the continent may affect progress.

In its recent Monetary Policy Committee, the Reserve Bank of Malawi said it expects the average headline inflation to slow down to 18.2 percent this year.

RBM anticipates subdued imported inflationary pressures on account of declining fuel and non-fuel global commodity prices.

However, the central bank remained cautious, saying the outlook remains mixed as an elevated inflation risk is still imminent due to structural challenges, among other things.

It says, apart from easing supply bottlenecks necessitated by the switch to non-Russia suppliers as well as the UN-initiated Black Sea grain deal, the decrease in global commodity prices is expected to be sustained by the weak demand following the prevailing tight financial and monetary conditions, particularly in advanced economies.

“This notwithstanding, the risks from domestic factors remain heightened due to lagged effects of fiscal slippages and exchange rate depreciation, in addition to elevated prices of domestically-produced food commodities on account of the delayed effects of high costs of inputs,” the MPC report reads.

Economist Gilbert Kachamba said the trend would change as the country exits the lean season.

“We are moving towards stability as the increase is not that alarming. I hope, soon, food inflation will start falling. Nonetheless, the inflation rate is still high,” Kachamba said.

The Economists Intelligence Unit projects a year-on-year inflation rate of 13 percent while the International Monetary Fund sees inflation averaging 16.5 percent this year.

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