Inflation makes u-turn in May

After months of deceleration, Malawi’s headline inflation made a u-turn and started rising as food prices surged.

Ironically, the food prices have started to rise barely two months after harvest, a sign that the worst is yet to come.

According to the National Statistical Office (NSO) headline inflation inched up by 0.6 percentage points from 20.9 percent in April to 21.5 percent.

The May 2016 inflation is 2.0 percentage points higher than the 19.5 percent recorded in May 2015.

“Overall, food inflation stands at 25.7 percent from 24.3 percent in April 2016 while Non Food inflation dropped to 17.6 percent.

“The urban and rural rates stand at 18.5 percent and 23.6 percent respectively,” says NSO.

The recent rise in inflation should act as a blow to the private sector who were banking on the fall in inflation to provide a leeway for the monetary authorities to cut the cost of borrowing currently at over 40 percent.

The situation is expected to be compounded by the recent hike in fuel prices which is expected to push up nonfood inflation as transport costs rise.

The rising inflation in May is also against the Reserve Bank of Malawi’s (RBM) prediction that declining trend were expected to continue to meet its inflation projection of 19.3 percent for June 2016 as presented in its 3rd Monetary Policy Statement, published in January 2016.

In a statement last month, RBM said it would maintain the tight monetary policy stance through its open market operations in order to manage excess liquidity in the money market that could otherwise exert pressure on the exchange rate, thereby undoing the current positive developments in inflation.

“Beyond August 2016, inflation rate seasonally follows an upward trend because food prices and the exchange rate experience pressure due to limited supply in their respective markets.

“However, following Government’s announcement of a state of disaster in April 2016, Government’s efforts and those of donors to close the estimated 1.3 million metric tonnes food gap should have a dampening effect on food prices hence on inflation in the long term,” said RBM.