Malawi’s headline inflation slowed to 12.3 percent year-on-year in May from 14.6 percent in April, official data from the National Statistical Office (NSO) showed on Wednesday.
The country’s annual rate of inflation has been falling steadily for more than 10 months since June 2016 largely helped by declining food prices, a relatively stable kwacha and lower international fuel prices.
This downward trajectory of both food and nonfood inflation has provided scope for monetary policy to start unwinding.
In February this year, the Reserve Bank of Malawi (RBM) slashed the policy rate—the rate at which commercial banks borrow from the central bank—by two percentage points to 22 percent from 25 percent.
However, as the inflation—a term economists use to describe a sustained increase in the general price level of goods and services in an economy over a period of time—keeps dropping on account of low maize prices, prices for other goods and services continue to rise.
For example, the real estate sector has seen a surge in the price of housing and accommodation.
State-run Malawi Housing Corporation (MHC) last week announced an average 48 percent increase on all its houses.
Along with this development, essential commodities such as sugar, cooking oil and other basic needs have also sharply gone up in most shops.
Reacting to the news on the official Malawi Government Facebook page, one post reads “Inflation might have fallen but still the consumer price index gives a negative picture to cost of living. Prices of commodities are still up as were in January and people are still suffering. The prices of goods are still increasing in June.”
But in an interview yesterday, economic statistician Alick Nyasulu described the development as a right trajectory which could mean that government is borrowing less.
“This is good for the financial and insurance markets with potential to reduce rates. If inflation continues to go down, it is likely that the RBM may cut the bank rate and borrowing costs may go down. Combining this with reduced borrowing through treasury bills by government surely gives a positive outlook.
“For the common person, it means that annual premiums paid for policies may not rise much but since these are inflation linked and with salaries moving at a slow pace then it is also a good thing.”
Meanwhile, Blantyre-based investment and portfolio managers Nico Asset Managers have projected that Malawi’s inflation is expected to drop further this year while government and the central bank are targeting a single digit inflation rate by early next year. n