Global commodity prices’ drop offers little relief

Global commodity prices’ drop offers little relief

Post was last updated: August 22, 2023

The Reserve Bank of Malawi (RBM) says the continued price drop for some key commodities such as fertiliser and oil on the global market offers little relief in terms of  prices on the local market.

In its Monetary Policy Statement Report issued on Friday, the central bank said that inflation rate, currently at 28.4 percent, will remain high as pressures on  prices have emerged from both supply and demand-side factors.

Reads the report in part: “On the supply factors, this development has been evident in rising food inflation during the harvest period in the second quarter of this year, which is contrary to seasonal trends, a phenomenon that symbolises that the adverse supply-side inflationary pressures have intensified.”

The central bank said pressures are likely to emanate from elevated public sector financing requirements as well as exchange rate developments.

“All these developments are driving market expectations and contributing to rising inflation,” reads the report.

RBM said it remains vigilant and will take necessary action to ensure that inflation reverts to low and stable levels.

On the global front, Brent crude oil prices continued to slow down and stood at $78.23 per barrel in the second quarter of this year from $112.74 per barrel in the previous quarter.

In tandem with the global oil price developments, which was as a result of subdued demand amid improved supply following the resumption of the Libyan crude oil production, local retail pump prices of petrol have remained at K1 746 per litre, diesel at K1 920 per litre and paraffin at K1 261 per litre.

Similarly, Urea fertiliser prices averaged $314.85 (about K343 000) per metric tonne (MT) in the second quarter of the year, down from $371.58 (about K406 000) per MT in the first quarter. This compares to $835 (about K914 000) per MT in the second quarter of 2022.

Ironically, Malawi’s inflation is fast rising, triggered by a rise in commodity prices mainly food.

National Statistical Office data shows that headline inflation rate for July 2023 rose to 28.4 percent from 27.3 percent in June.

The figures further show that food inflation went to 39 percent from 37.9 percent the previous month while non-food inflation was stable at 16 percent.

Speaking in an interview yesterday, economic statistician Alick Nyasulu said the continued rise in inflation is a cause for concern and called for reflection on monetary policy issues.

He said: “Unless we deal with key structural issues such as failure to increase exports, we will continue to have a weak kwacha which is greatly affecting prices as forex for imports is expensive.

“We thus need a relook in the factors if we are to tame inflation.”

Economist Bond Mtembezeka said in an interview yesterday that the food output situation and the foreign exchange shortages present strong upside risks to inflation.

The International Monetary Fund has asked local authorities to ensure that the monetary policy framework centres on containing food price.

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