Inflation drop sign of stability – Ecama

Economics Association of Malawi (Ecama) has said the drop in inflation rate, currently at 18.2 percent as of January 2017, is a sign of macro-economic stability.

Malawi’s headline inflation for January has slowed by 1.8 percentage points to 18.2 percent from the previous month’s 20 percent, thanks to a drop in food inflation from 24.4 percent in December 2016 to 21.1 percent in January 2017.

Ecama president Henry Kachaje in an interview yesterda said the continued drop in inflation signals the direction that Malawi is taking on macro-economic stability.

He said: “What this means is simple, we are slowly going towards attaining macro-economic stability. This means that fiscal discipline being exercised in government is bearing fruits. There has been a slowdown in borrowing by government. Despite maize prices being reasonably higher than what they were last year, they have been fairly stable.

“So, if we continue on that trend where inflation continues to drop to around 15 percent, its more likely that the central bank would consider reducing the policy rate, a development which would help to stimulate private sector activity.”

Kachaje said looking at prospects of harvests this year, there is a high probability that there would not be food shortage this year.

“Looking at the availability of last year’s food in many warehouses, there is a chance that come May and June, prices of food will continue going down and if that will happen, it will definitely trigger down inflation rate,” he said.
The 18.2 percent January inflation rate is below the 2017 half year target of 18.6 percent set by the Reserve Bank of Malawi (RBM).

The slowing down of food inflation shows that food prices are trending downwards. The price of maize, which makes up a huge component of food in the consumer price index, has over the past months been going down. Currently, a 50 kilogramme (kg) bag of maize is selling at K8 500 in some markets.
This is against the price of K12 500 that Agricultural Development and Marketing Corporation (Admarc) is selling in its depots.

In an interview yesterday, Catholic University head of economics department Gilbert Kachamba said the slowing down of inflation will help to improve the living standards of ordinary Malawians by bringing down cost of living.
However, he wondered whether the drop will be sustained after the lean season.

In November last year, RBM Governor Charles Chuka told journalists that consistent implementation of a tight monetary policy stance and actions taken by government to reduce fiscal pressures are helping to reduce inflationary expectation.

“Looking ahead, the factor that is unknown is whether or not the exchange rate would behave better than last year and much depends on fiscal operations.

“On the balance, the exchange rate outlook is far much better than last year, implying a much less inflationary impact from the exchange rate,” he said.

Last week, Minister of Finance, Economic Planning and Development Goodall Gondwe said over the past six months, government has reduced fiscal deficit by one percentage point from 3.9 percent in the 2015/16 financial year.

He said despite a domestic borrowing threshold of K65 billion given by International Monetary Fund (IMF), government has only borrowed K25 billion by December 31 2016.