Malawi inflation climbs to 21.3 % and rising

Malawi’s year-on-year headline inflation rate for June 2015 has risen by 1.8 percentage points to 21.3 percent from 19.5 percent in May 2015, signalling that the poor southern African country is struggling to keep its economy functioning normally without aid.

Inflation is the rate of increase in prices over a given period of time. It is typically a broad measure, such as the overall increase in prices or the increase in the cost of living. But it can also be more narrowly calculated—for example, for certain goods, such as food, or for services, such as school fees.

The Reserve Bank of Malawi (RBM) data shows by June inflation rate in the country has averaged 14.52 percent from 2001.

Inflation reached an all-time high of 37.90 percent in February 2013 and a record low of 6.30 percent in December 2010.

The unemployment rate continues to rise and the local currency, Kwacha is still weakening against major international currencies like th US Dollar.

The weakening of Kwacha currency is in sharp contrast to the high levels of foreign currency the economy is sitting on, cumulatively at $1 billion ($500 billion) as at July 13 2015. This is a combination of gross official reserves, held in the custody of the Reserve Bank of Malawi (RBM) to prop up the kwacha, estimated at $724.29 million, or 3.47 months of import cover, and private sector reserves in commercial banks at $292.4 million, or 1.4 months of import cover.

Recently, Minister of Finance and Economic Planning Development Goodall Gondwe conceded that the country is going through turbulent times and that the economy is in “bad” shape

Gondwe who seeks to achieve single-digit inflation rate in two to three years time set the inflation target for this fiscal year at 15 percent and an inferred December target of 12 percent.

.But analysts expect the inflation rate to keep rising as many Malawi face severe food shortages.

In its June 2015 monthly economic report, the Blantyre-based investment advisory firm Nico Asset Managers Limited, said: “Inflation is expected to remain elevated, as a result of the rising food prices from lower than expected harvest and recovering global oil prices.”

Former economic planning minister Ralph Jooma has said radical changes are needed to revive Malawi’s economy, which is in bad shape and requires a fresh approach.

Jooma said inflation “will not be as low” and that the exchange rate “will not be as stable.”

He said: “Interest rates will remain high and industry capacity utilization will subdue and therefore hamper economic growth because the economy will not be able to produce the projected goods and services. This is the reality.”

An economic observer told Nyasa Times that although DPP had “rigged the May20, 2014 election, it will not be able to rig the economy”.

 

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