Kwacha gain, fuel price drop push down inflation

Malawi’s inflation as measured by the consumer price index (CPI) fell to 21.2 percent in January 2014 from 24.2 percent in December, courtesy of falling fuel prices and the appreciation of the kwacha.

National Statistical Office (NSO) figures show that food inflation inched downward to 21.5 percent in January from 22.1 percent in December 2014 while non-food inflation fell from 27.2 percent in December 2014 to 20.8 percent in January.

Reserve Bank of Malawi (RBM) expects the inflation rate to fall to around 15 percent by June this year on account of the appreciation of the kwacha and reduction in fuel prices.

While RBM expects inflation rate to fall further, Chancellor College professor of economics Ben Kaluwa said it is possible to achieve the feat, but it  will depend on this year’s maize output and the impact of the recent floods on the economy.

He noted that with the country heading towards the harvest period, which is also coupled with the seasonal appreciation of the kwacha, inflation is expected to fall further.

Said Kaluwa: “Inflation will fall due to both cost push, specifically the appreciation of the kwacha and falling petroleum prices and supply side factors, including the availability of maize.”

He explained that for Malawi to avoid the seasonality of inflation, it needs to move away from unimodal production of food, which depends on rain-fed agriculture to ensure that the country has sufficient food throughout the year.

After being cut by about 10 percent early January this year, prices for petrol, diesel and paraffin were also reduced by a similar percentage early this month due to falling global prices and the appreciation of the kwacha.

Along with the increase in official gross reserves, which now stand at an equivalent of about five months of import cover, the kwacha has also been appreciating against the dollar with the greenback officially selling at K449.72 yesterday compared to K514.19 a few weeks back.

But despite the decline in the fuel prices and the appreciation of the kwacha, consumers are bitter that the economic gains have not translated into a decrease in prices of goods and services on the market.

Consumers Association of Malawi (Cama) executive director John Kapito said regardless of the positive developments, some traders have been raising their prices instead of reducing them.