No instant relief on prices—economists

No instant relief on prices—economists

Economists have said the easing pressure on inflation rate may not translate into relief in prices of goods and services in the short-term, but this could be temporary.

Ideally, easing inflation could entail that consumers have less incentive to spend money in the short-term, resulting in less economic activity.

While headline inflation rate has eased from 34.5 percent in December 2023 to 31.8 percent in March 2024, the outlook seems to defy the present status.

During the First Monetary Policy Committee (MPC) Technical Meeting in February this year, the Reserve Bank of Malawi (RBM) projected inflation to start dropping to the 20s by mid this year, while the mid-term forecast remained in single digit inflation averaging plus/minus five percent by 2026.

But during the Second MPC Technical meeting in Blantyre last week, RBM said key underlying assumptions assumed that food prices would moderate between April and June owing to the expected harvest and anticipated food relief initiatives, only to pick up thereafter.

On the global market, projections show that Brent crude oil prices are also expected to pick up from an average of $83.15 per barrel during the review period to $87 per barrel, translating to increased fuel prices.

Water and electricity tariffs are also projected to be adjusted upwards as pressures on exchange rate are expected to continue, though in moderation.

Economics Association of Malawi acting senior economist Licious Pawa, in an interview on Tuesday, observed that while the risks to inflation are consistent with the situation on the ground, inflation may not decelerate in the forecast horizon.

He said: “When you analyse the risks, where do we get the sense of confidence that inflation might continue to decelerate?

“Pressures from the fiscus would make us believe that RBM needs to tread with caution on these key assumptions. There is too much confidence when the forecast shows a gloomy picture.”

The decelerating inflation has been driven by moderation in both food and non-food inflation with food inflation declining to 38.8 percent in March 2024 from 43.5 percent in December 2023.

Similarly, non-food inflation edged down to 22.2 percent in March 2024, from 22.8 percent in December 2023.

RBM projects 2024 average headline inflation at 30 percent from 28.8 percent in 2023.

On the other hand, Financial Market Dealers Association president Leslie Fatch said the growing money supply, which threatens inflation outlook, needs to be tamed if authorities are to control rising inflation.

“We anticipate a lot more activity from RBM to mop up excess liquidity, especially now during the agriculture season when depreciation is also likely,” he said.

RBM director of economic policy and research Kisu Simwaka said while the central bank expects inflation to decelerate and hit a single digit by 2028, the journey to lower inflation might take time.

He said: “The fact that we are looking at inflation averaging 30 percent is an indication that the journey to lower and single digit inflation might take a lot of time; hence, the projection.

“We have seen a declining trend, but still think it is too early to start crafting the policy downwards. For now, inflation numbers are still high.”

Simwaka said presently, the central bank is working on mopping excess liquidity from the market as money supply remains high, driven by domestic financing.

“That also constitutes pressure on prices and pulling out money from the economy to slow down money supply growth could also help bring down inflation,” he said.

During the period under review from January to March 2024, money supply growth remained high at 47.8 percent, a rise from 32.2 percent in the fourth quarter of 2023.

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