Economics Association of Malawi (Ecama) says the country needs to address supply side constraints relating to weather and other shocks that affect the agriculture sector to maintain downward inflation trajectory
Ecama president Lauryn Nyasulu said in a written response on Wednesday that for monetary policy to be fully effective, the monetary sector needs to be supported by a productive real sector to entrench the economic gains achieved.
She said: “Persistent shocks such as floods, dry spells and fall army worm remain a major risk to maintaining a downward inflation trajectory.
“The good news however, is that the upsurge in food inflation in Malawi is a seasonal phenomenon and so, it is expected to start declining as soon as harvesting period kicks. Nevertheless, the high inflation rates have potential to undermine the macroeconomic gains achieved.”
Nyasulu’s sentiments come in the wake of National Statistical Office (NSO) figures indicating that a slight rise in non-food inflation from 4.7 percent in November to 4.5 percent in December did little to cushion the rising inflation emanating from food inflation, which rose from 17.2 percent in November to 19.3 percent in December.
This pushed up year-on-year inflation by 1.1 percentage point to 11.5 percent in December.
However, despite the rising food prices, monetary authorities have managed to contain average annual inflation within the year in single digits, although at 9.4 percent, the rate is 0.4 percentage points to their projected nine percent.
Although maize production increased by an estimated 24.7 percent relative to the previous year, prices of the country’ staple food has been on an upward spiral in the past months, currently trading at as much as K400 per kilogramme (kg), translating to K20 000 per 50kg bag in some parts of the country.
Maize, as part of the food component, impacts the country’s economy given that it constitutes 45.2 percent of the Consumer Price Index (CPI), which is an aggregate basket of goods and services for computing inflation.
In its December 2019 Malawi Economic Monitor, the World Bank said this trend has been largely driven by speculation amongst traders, who are anticipating a replenishment of the Strategic Grain Reserves (SGRs), coupled with tight regional supplies due to production shortfalls in neighboring countries, and some outflows (despite the export ban).
RBM spokesperson Mbane Ngwira said yesterday that the continuing rise in food prices, particularly maize grains, was the major factor behind the sharp jump in headline inflation with the December outcome representing the highest recorded inflation rate since May 2017, when it measured 12.3 percent.
“Inflation has evolved broadly along the projected lines. Headline inflation averaged 9.4 percent in 2019, marginally above RBM projection of 9.2 percent, and compared to 9.2 percent in 2018. The rise in inflation is temporary, and food prices should begin to decline in the coming months, as more food become available,” he said.
Malawi’s annual rate of inflation has been falling steadily since June 2016 helped by declining food prices, a relatively stable Kwacha and lower international fuel prices.