Nico Asset Managers Limited has warned that expected maize price increases during the lean season will pile pressure on headline inflation and raise the cost of investment.
In its 2019 Mid-Year Economic Report released on Friday, the portfolio and investment management firm observes that localised maize shortages in many parts of the Southern Region, which were affected by floods, are causing upwards pressure on prices.
Reads the report in part: “Despite June being within the harvest period when prices are typically at their lowest, maize prices are currently above the five-year average and much higher than prices at the same time in 2018.
“Food security outcomes are expected to deteriorate significantly during the lean season from September 2019 to February 2020 when food prices are at their highest and local cereal supplies are at their lowest.”
The firm , a subsidiary of Malawi Stock Exchange-listed financial services group Nico Holdings plc, said this will likely lead to a buildup in food inflationary pressures, and as a result of these pressures, the headline inflation will likely go up should maize prices continue on the current trend.
The year-on-year headline inflation for May 2019 was at 8.9 percent, according to the National Statistical Office (NSO).
Nico Asset said inflation is expected to ease to around eight percent at the end of this year and gradually converge to five percent over the medium-term.
“These estimates are predicated upon the continued softening of global oil prices and higher agricultural output and controlled government spending,” reads the report.
High inflation rates raise the cost of investment, thereby hampering private sector growth while lower inflation rates may lead to reduced interest rates which could increase private sector investments and disposable income for expenditure.
Business News spot-checks in selected produce markets last week showed that a 50 kilogramme (kg) bag of maize is selling at around K10 000 or K200 per kg.
Maize, as part of the food component, impacts inflation as it accounts for about 45.2 percent in the consumer Price Index (CPI), which is an aggregate basket of goods and services for computing inflation.
Grain Traders and Processors Association of Malawi president Grace Mhango last week attributed the rising maize prices to speculation that World Food Programme (WFP) will soon be start buying maize at prices ranging from K200 to K230 per kg.
Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira said they are yet to assess the impact rising maize prices could have on inflation, which has been in single digit lane since last year.
This year’s maize surplus was estimated at 355 000 metric tonnes out of a total output of 3.3 million MT.
In the report, Nico Asset Managers said it is expected that RBM will maintain the loose monetary policy stance to maintain price stability.