RBM outlines inflation risks

The Reserve Bank of Malawi (RBM) says rising transport and food costs on the global and domestic market pose a threat to the country’s inflation rate.

In its December Market Intelligence Report issued on Friday, RBM said the surge the global oil prices to $90 a barrel, the first time in seven years, will pose challenges to inflation management across all globe, including Malawi.

Reads the report in part: “The rising inflation and depreciating currencies is a problem currently faced by most countries across the globe, including Malawi. Rising costs of transportation and food costs are the common factors driving inflation.”

In an interview yesterday, economic statistician Alick Nyasulu said rising commodity prices, which are inevitable in the current economic environment and have been compounded by the Coivd-19 pandemic, are a threat to inflation.

He said: “The rising oil prices coupled with the agriculture outlook appears quite uncertain. The fears of an inflation spike are thus founded given the unpredictable outlook of prices of essential commodities that have significant impact on inflation.”

Financial Market Dealers Association of Malawi president Mclewen Sikwese is also on record as having said as pressures on fuel prices escalate and with the kwacha under pressure, inflation rise is inevitable.

Malawi’s inflation rate has been rising lately owing to increasing food and non-food inflation.

National Statistical Office (NSO) figures show that Malawi’s year-on-year headline inflation rate for December 2021 was at 11.5 percent compared to 7.6 percent in December 2020.

The annual headline inflation rate for 2021 stood at 9.3 percent compared to the annual headline inflation rate of 8.6 percent registered in 2020, according to NSO. 

RBM projected that headline inflation rate would average 9.1 percent in 2021, up from 8.8 percent projected during the third Monetary Policy Committee Meeting.

Meanwhile, Malawi Energy Regulatory Authority (Mera) has hinted on a possible fuel hike, arguing that key factors that affect landed costs of petroleum products have been on the rise since the last review in October 2021.

In a published statement last week, Mera indicated that since the determination of the ruling pump prices in October 2021, the kwacha has slightly depreciated against the dollar by 0.12 percent from an average of K823.49 to the dollar to the current average of K824.48 to the dollar.

Mera has also indicated that the Price Stabilisation Fund balances for petrol, diesel and paraffin averaged K900 million and that under the automatic pricing mechanism, prices are also adjusted when the change in the landed cost is beyond the plus or minus five percent trigger band. 

Meanwhile, Economist Intelligence Unit (EIU) has projected that inflationary pressures pose risks to accommodative monetary policy in the short to medium-term.

In a brief issued recently, EIU said it expects no further easing of the policy rate as inflation rate remains above the RBM target of plus or minus five percent coupled with the depreciating exchange rate.

EIU sees RBM adopting a tightening stance from this year as inflationary pressures build on the back of rising global oil prices and improved consumer sentiment.