RBM revises upwards 2013 average inflation

Bothered by several risks in the financial system, the Reserve Bank of Malawi (RBM) has revised upwards Malawi’s annual average inflation rate for this year by two percentage points to 20 percent.

Early this year, RBM Governor Charles Chuka said the central bank foresaw average inflation closing at 18 percent in 2013.

But he made a U-turn on Wednesday at a news conference at RBM headquarters in Lilongwe that in view of prevailing monetary developments, the bank has reviewed the average price for this year to 20 percent or slightly above such a mark.

“We were hoping that annual average inflation this year would be at 18 percent, but now we see average inflation at 20 percent, but we might even go to 21 percent. But we will be happy at 20 percent,” said Chuka.

Dramatic depreciation

Malawi’s year-on-year headline inflation rate, now at 35.1 percent continues to rise unabated, pressurised by, among others, the dramatic depreciation of the kwacha to major international currencies, the scarcity of maize in most parts of the country and the month-to-month fuel price hikes.

Already, analysts have cautioned that the recent civil servants pay hike by government—paying the lowest paid civil servant a 61 percent salary increment and the highest five percent pay increase—will likely exert more inflationary pressure in the economy as it will translate into high demand for goods and services with the supply remaining constant.

Chuka also admitted that it is inevitable that the recent wage bill increase will potentially fuel inflationary pressure, but hoped that the pressure will begin to subside during the course of the year.

“We hope that inflation will start falling significantly by May and June and we are happy that NSO [National Statistics Office) has rebased its data to 2012,” said Chuka.

The NSO has rebased the consumer price indices (CPI) to 2012 using updated household expenditure patterns derived from the 2010/2011 Integrated Household Survey (IHS3) from CPI based on the year 2000 derived from the 1997-1998 IHS1.

Effects of rebasing

The rebasing has seen changes in the contributions of different components in the consumer price index and introduction of other minor components.

Following the rebasing, NSO has changed the weighting of the consumption basket in such a way that food contribution has decreased to 50.2 percent from 58.1 percent.

“We are seeing inflation coming down after April. We need to realise that there is hope at the end of our work. Do not panic,” said Chuka.

However, Nico Asset Managers has warned in its market commentary that inflation is expected to continue rising in the first quarter of 2013.

The firm says inflation is also set to be triggered by the recent rise in fuel costs, which will lead to consequent increases in prices of other goods and services.

“Rising inflation rate will continue to erode the purchasing power of money, hence resulting in lower disposable incomes and reduced savings. A reduction in savings could in turn reduce funds available for capital investments resulting in low private sector activity and slow economic growth,” said Nico Asset Managers.