The Reserve Bank of Malawi (RBM) says it is positive that inflation pressures this year will continue to subside despite the forecast reconfirming that the outlook for inflation rate faces risks.
In a Monetary Policy Committee (MPC) report issued on Friday, RBM Governor Wilson Banda said the central bank is banking on the relatively low food prices due to a projected better food crop harvest during the 2020/21 season.
He said: “The inflation outlook faces upside risks which include the persistently low supply of foreign exchange amidst elevated demand which continues to exert pressures on the exchange rate as well as the continued widening of the fiscal deficit.
“However, it is likely that the effects of the pressures arising from the upside risks could be offset.”
Agriculture development policy expert Tamani Nkhono-Mvula said considering that the majority of the food producers used fertiliser and hybrid seed through the Affordable Inputs Programme (AIP), coupled with good rainfall thus far, the country will have an increased harvest this year compared to the previous years.
But he cautioned that the current predictions are considering the issue of fall armyworms as being negligible; otherwise it is also an important factor that will have a bearing on the levels of the harvest.
Said Nkhono-Mvula: “Compared to the level of the harvest for this year and that of the previous years on proportional basis based on the level of public investment then the harvest for this year is lower compared to last year.
“On inflation, it is very likely that the inflation rate will be low as the main determinant of inflation in Malawi is the availability of maize.”
The MPC has remained firm that the annual headline inflation rate projection for 2021 remains at 7.8 percent and will decline further to 7.6 percent in 2022.
However, average inflation rate for the first quarter of 2021 is projected at 8.1 percent, which is 1.0 percentage points above the fourth 2020 MPC forecast round.
Meanwhile, headline inflation rate inched up by 0.1 percentage points to 7.7 percent in January 2021.The January inflation rate represents a 1.3 percent increase when compared to the 7.6 percent rate recorded in December 2020.
Ironically, prices of maize, Malawi’s staple food, have remained stable since November last year, selling at K11 000 per 50 kilogramme (kg) bag in some parts of the country.
Maize, as part of the food component, accounts for about 45.2 percent of the Consumer Price Index (CPI), which is an aggregate basket of goods and services for computing inflation.
Meanwhile, according to the Third Round Crop Assessment report by the Ministry of Agriculture, the country’s maize output is expected to be at 4.4 million metric tonnes (MT) this year compared to 3.8 million MT last year.
Famine Early Warning Systems Network has, however, observed that despite the above-average national supply this year, which has in turn stabilised maize prices, Covid-19 continues to reverse improvements in income-earning at a time when income-earning opportunities are already at seasonally lower levels.