Inflation to average 8.8% in 2020—EIU

Post was last updated: January 29, 2020
Mbane Ngwira

Global research and analysis firm, Economist Intelligence Unit (EIU), has predicted that the country’s inflation would average 8.8 percent this year helped by lower global oil prices.

If it materilialises, the average inflation would be 0.6 percent better than the 9.4 percent recorded in 2019.

Annual inflation rate in Malawi rose to 11.5 percent in December 2019 from 10.4 percent in November.

This is the highest inflation rate the country has recorded since May 2017, following free rising maize prices for the better part of 2019.

According to Nico Asset Managers Annual report for 2019, EIU has further predicted that currency depreciation would slow down this year which will keep inflation low.

“The rate of inflation is expected to edge back up in 2021 to 2023 as global oil prices rise steadily and domestic demand strengthens, supported by increased disposable income as agricultural output grows.

“However, adverse weather, pest-related disruptions to crop production and a sharper than expected depreciation of the Kwacha pose major upside risks,” reads the report in part.

Currently, skyrocketing food prices continue to give the monetary authorities a headache as they keep pressuring inflation.

As at last Friday, maize prices were seen at between K15,000 and K20,000 per 50 kilogram bag in many parts of the Southern and Central Regions.

Nico Asset Managers has predicted that headline inflation is expected to continue to rise in the short run at least up to the end of the lean period.

“The inflation is expected to ease at the end of the lean period, however, this will depend on the maize output being adequate and no sharper increases in global fuel prices are registered,” reads the report.

The sharp surge in inflation has dented chances of monetary authorities slashing the policy rate when they meet in Blantyre this week.

RBM Director of Communication and Protocol, Mbane Ngwira, recently admitted that rising food prices was a major challenge to monetary policy in 2019.

“Maize prices increased strongly during the year causing persistent high food inflation. This is a challenge for monetary policy because it creates negative inflation expectations despite the fact that the source of inflation is from the supply side.

“As repeatedly explained in the past year, the modern monetary policy that the RBM adopted, requires that the expectations should be well anchored. But food prices will collapse and converge towards non-food inflation, assuming there will be no any serious supply shock in 2020, hence, this challenge is considered temporary,” Ngwira said.

RBM harbours a long-term ambition of achieving an inflation rate of 5 percent by 2021 which would help pull down interest rates to around 11 percent.

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