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Declining inflation Draws mixed views

 

Malawi’s year-on-year inflation for May 2018 dropped by 0.8 percentage points to 8.9 percent from 9.7 percent the previous month, a development that has drawn mixed reactions from two economists.

National Statistical Office (NSO) figures show that declining food and non-food inflation influenced overall inflation to drop in the month. This means that prices of goods and services in May increased at a declining rate compared to April.

In an interview yesterday, Economics Association of Malawi (Ecama) executive director Maleka Thula said while the drop in inflation—the rate at which the level of prices for goods and services is rising—is seasonally expected given the improved availability of food as the agricultural season progresses, upside risks still remain.

“This [the drop in inflation rate] is also supported by the continued stability in the exchange rate which is further galvanised by increased foreign exchange proceeds from tobacco sales.

“However, going forward, the upside risks remain fiscal pressures that might arise from the anticipated increased government borrowing in the face of fiscal deficit and increasing global oil prices that may exert pressure on domestic fuel pump price to rise,” he said.

Treasury has just revised the overall fiscal deficit from 4.5 percent of gross domestic product (GDP) to 3.8 percent of GDP, following the reduction in the total expenditure and net lending from K1.5 trillion to K1.45 trillion.

This means the deficit for the 2018/19 fiscal year is at K192 billion from the earlier estimate of K242.9 billion.

On the other hand, global fuel prices have been on the rise and on Friday, the price was recorded at $79 (about K58 000) a barrel, a development that could pose a risk to local fuel prices.

But two weeks ago, Malawi Energy Regulatory Authority (Mera) assured that the regulator will continue to cushion consumers using the price stabilisation fund which will help to compensate trading losses in line with the automatic fuel adjustment formula.

Catholic University dean of social sciences Gilbert Kachamba said it is strange that inflation is going down during this time of the year when there is supposedly too much money in circulation.

“This time around people are selling tobacco and there is too much money in circulation and we expected inflation to go up by some points,” he said.

NSO figures show that food inflation eased by 0.5 percentage points to 9.5 percent from 10 percent in April while non-food inflation dropped by 0.5 percentage points to 8.4 percent from 8.9 percent the previous month.

In its monthly economic brief for April 2018, Nico Asset Managers said food inflationary pressures are likely to occur driven by speculation of reduced food availability on account of dry spell and fall army worms that have reduced this year’s agricultural output by 19.4 percent.

“Non-food inflation may increase due to a rise in global oil prices as a result of global reduction in oil production and the rising tensions in the Middle East.

“Other factors that may put pressure on non-food inflation include the demand for wage increases, housing cost increases and increase in electricity tariff,” reads the report tin part. n

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