Malawi’s inflation is anticipated to continue rising in the first quarter (Q1) of this year, but at a slower pace than the last two quarters of 2012, according to Nico Asset Managers Limited.
The investment and advisory firm, in its annual economic report for 2012, has also noted that the exchange rate is currently showing signs of stabilisation as authorities implementing a tight monetary policy and global oil prices are on the decline.
Inflation currently at 33.3 percent as of November 2012, according to the National Statistical Office (NSO) is mainly driven by food prices which contribute about 58.1 percent to the consumer price index (CPI)—a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and household operations.
“As such, inflation is expected to moderate after the maize harvest in March but with a lag,” said the firm’s report quoting the Economist Intelligence Unit (EIU).
The report says average inflation is expected to rise lightly this year owing to currency depreciation and the base effects of the relatively low inflation in early 2012.
But it says inflation will moderate thereafter from 12.9 percent in 2014 to 9.2 percent in 2015 as the currency depreciates more gradually and productivity continues to increase.
“Inflation is forecast to rise to an average of 9.7 percent in 2016-17 on account of increasing commodity prices and rising domestic demand, including for capital goods to support the public investment programme towards the end of the outlook period,” says the report.
Economic experts are hoping for the inflation to moderate subject to the performance of the agriculture sector. The Malawi economy is agriculture dependent.
But the firm says a major risk to the inflation forecast is the possibility of severe drought, which would reduce maize production and boost food prices.
Further risk to the control of inflation is the high short-term domestic debt maintained by government which is at around K165 billion (about $485 million), as at December 2012, compared to K176.4 billion (about $518 million) as at end of December 2011.
Economists agree that inflation is a monster that erodes the purchasing power of money resulting in lower disposable incomes and reduced savings.