The International Monetary Fund (IMF) says managing the volatility of inflation will take time given Malawi’s well-known vulnerability to internal and external shocks.
IMF resident representative Jack Ree said in a written response to a questionnaire on Tuesday that what matters, in the interim, is the management of the inflation trend, which is generally driven by inflation expectations.
According to the IMF’s latest assessment, inflation is expected to reach 9.5 percent at end 2018 before gradually converging to around five percent over the medium-term.
“Given the expected effects of increase in electricity tariffs and fuel prices and volatile inflation expectations, this is not an easy goal.
“However, I believe that the target path of inflation is achievable, based on Malawi’s recent success in its inflation fight and the strength of its macroeconomic policies,” he said.
Inflation rate has been on the upward movement from July this year due to rising food prices of maize, which, as part of food, constitutes 45.2 percent in the consumer price index (CPI), which measures changes in the price level of market basket of consumer goods and services.
Recently, the Malawi Energy Regulatory Authority (Mera) hiked the prices of petroleum products by an average of five percent, a development which also triggered Minibus Owners Association of Malawi (Moam) to effect a five percent price adjustment on minibus fares.
Mera also approved a 31.8 percent electricity tarrifs for Electricity Supply Corporation of Malawi (Escom) over a four-year period.
In its February 2018 Economic Newsletter, Malawi Stock-Exchange (MSE)-listed National Bank of Malawi plc observed that while more monetary tightening may, therefore, be expected in 2018 to achieve inflation targets, electricity tariff hike, coupled with pressure to increase liquid petroleum product prices and rising maize prices, remain a risk to attaining the target.
Last month, the Monetary Policy Committee (MPC) of Reserve Bank of Malawi (RBM) maintained the inflation forecast of a single digit this year and five percent in the first quarter (January to March) of 2020.
RBM Governor Dalitso Kabambe said the upward inflation was already projected, saying the central bank had already put in place controls to manage the situation observing the movement’s in global oil prices and risks in terms of water and electricity tariffs adjustments were factored into their projections.