The International Monetary Fund (IMF) has projected that Malawi’s 2021 annual inflation rate will average 9.5 percent due to the Covid-19 pandemic-related supply-demand mismatches and high commodity prices.
The projection, which is 0.7 percentage points above the Reserve Bank of Malawi (RBM) projected 8.8 percent inflation rate comes in the wake of RBM’s expectation of the inflation rate to remain in single digit througout the year.
In the nine months to September 2021, Malawi’s inflation rate has averaged 8.73 percent. In September, inflation rate was recorded at 8.9 percent, according to the National Statistical Office (NSO).
In an interview on Monday, Economics Association of Malawi executive director Frank Chikuta observed that for the annual average to be 9.5 percent, it implies inflation rates of 11.6 percent or more for the months of October to December 2021.
“Although prices are likely going to rise given recent developments, a rise of that magnitude within the three months to December 2021 is unlikely,” he said.
In a separate interview, Malawi University of Business and Applied Science associate economics professor Betchani Tchereni observed that at a time the Covid-19 pandemic seems to have been dealt with mass vaccination, the country has seen a rise in demand for commodities, including fuel, causing prices to go up.
“In other words, this is a reflection of what should be expected. Rising inflation means that Malawians will have to pay more for their well-being which erodes their welfare,” he said.
Prices of food have been on the rise with retail maize prices increasing by five percent to average K147 per kilogramme (kg) in September 2021.
Maize, as part of the food component, contributes about 42.5 percent in the Consumer Price Index, a measure of price changes in a basket of constant quantity and quality of goods and service NSO uses to compute inflation.
Over the past 12 months, global oil prices have also rallied to 80 percent on the back of a back-on-its-feet world economy as Covid-19 infections fall, lockdowns fade and industrial output surges. Oil prices have surged above $80 (K65 000) a barrel in recent weeks.
These global developments compelled Malawi Energy Regulatory Authority to raise fuel pump prices by 22.8 percent on average earlier this month.
Effectively, petrol went up by 27.89 percent to K1 150 from K899.20, diesel went up by 24.72 percent from K898 to K1 220 while paraffin rose by 15.79 percent to K833.20 from K719.60.
Fertiliser prices, on the other hand, also increased by about 60 percent this year alone, a situation that could have a direct impact on maize production and food prices.
In its October 2021 sub-Sahara Regional Economic Outlook, IMF said great uncertainty surrounds inflation prospects, primarily stemming from the path of the pandemic, the duration of supply disruptions and how inflation expectations may evolve in this environment.
RBM spokesperson Ralph Tseka was yet to respond to our questionnaire on the issue as we went to press.
But RBM Governor Wilson Banda is quoted as having said in the third Monetary Policy Commitee Statement that inflation outlook points to heightening of non-food inflationary pressures.
To balance the efforts of managing the impending inflationary pressures and the adverse effects of the recent Covid-19 pandemic restrictions, RBM maintained the policy rate at 12 percent, the Lombard rate at 0.2 percentage points above the policy rate and the Liquidity Reserve Requirement ratio on both local currency and foreign currency deposits at 3.75 percent.