Inflation drop puzzles economist, consumers

Malawi’s year-on-year inflation rate which has dropped to 21.7 percent in September 2013 has stunned an economist and consumers who have argued that the drop is not in tandem with the situation on the ground.

The National Statistical Office (NSO) yesterday published the inflation rate for September which has slightly eased by 1.6 percentage point from 23.3 percent in August, largely attributed to the drop in non-food inflation to 24.2 percent from 28.9 percent in August 2013.

NSO said the urban and rural rates stand at 31 percent and 16.9 percent respectively, a clear indication that prices of goods and services are expensive in towns compared to the rural areas.

Inflation, the monster that reduces people’s purchasing power, has been declining since March this year, and this means that despite the prices of goods and services rising over the past months, they have been doing so at a declining trend, giving a respite to consumers.

The contribution of food in the Consumer Price Index (CPI) was in January this year reduced to 50.2 percent from 58.1 percent when the NSO rebased it 2012 using the  updated household expenditure patterns from the 2010/11 Integrated Household Survey.

However, food, largely cereals, still commands a larger portion in the (CPI)—a measure that examines the weighted average prices of consumer goods and services, and its price has been on the upward spiral because most households have finished what they harvested.

University of Malawi’s Chancellor College economics professor Ben Kaluwa was yesterday surprised that at a time food prices are going up, inflation—the general rise in the prices of goods and services—is trending downwards.

“It’s a straightforward issue that inflation rise in Malawi is a reflection of food cost and what is happening now is a paradox,” he said in an interview.

Inflation is also easing at a time the kwacha is fast depreciating against major trading currencies, a signal that foreign exchange is in short supply against the demand.

This means that people still have the local currency to buy forex which is not available, a situation that could have been driving inflation up north, said Kaluwa.

“Compared to last year, we are better off in terms of foreign availability but the cost is on the higher side,” he said.

Equally stunned is John Kapito, executive director of Consumers Association of Malawi (Cama) who questioned the authenticity of the inflation figures.

“We know the food prices are going up, the kwacha is getting weaker and weaker, hence so much pressure on inflation. That [the drop in inflation] doesn’t demonstrate what is on the ground,” he said.

Kapito suspected that the figures could be manipulated, and that one would doubt their authenticity.

“Maybe we have two countries in one country,” he said.

Commissioner of Statistics Charles Machinjiri could not be reached yesterday to explain the paradox in the inflation figures.

The drop in inflation would obviously excite Reserve Bank of Malawi (RBM) Governor Charles Chuka whose institution has been implementing a tight monetary policy stance and expect the rate to end at between 16 percent and 18 percent this year.

But minutes of the Monetary Policy Committee (MPC) meeting in September predicted that the inflation is expected “to be higher than earlier forecasted as prices of food, fuel and utility tariffs pick up”.

To the contrary, inflation rate is on the downward spiral.