Malawi inflation eases to seven-month low, but disinflation remains food-led and fragile

Malawi’s headline inflation rate has fallen for a seventh consecutive month, easing to 20.01 per cent in August from 20.83 per cent in July, according to data from the National Statistical Office analysed by Chifi Mhango, chief economist at Don Consultancy Group.

The rate has now declined 8.22 percentage points over the past year, from 28.23 per cent in August 2025, and 9.1 points from its October 2025 peak of 29.11 per cent.

The improvement, however, reflects a slower pace of price increases rather than falling prices, and masks a shift in the composition of inflationary pressure that complicates the outlook for monetary policy.

Food, which carries a 53.73 per cent weighting in the consumer price index, has driven the bulk of the disinflation.

Food inflation fell to 13.41 per cent in August from 36.07 per cent a year earlier — a 22.66 percentage point collapse reflecting improved supply conditions relative to last year’s shortages.

On a monthly basis, food inflation eased from 14.3 per cent in July to 13.4 per cent in August.

Non-food inflation, by contrast, has proved far stickier, easing only marginally to 31.8 per cent from 32.2 per cent.

Transport inflation stood at 47.42 per cent in August, housing, water and electricity at 34.59 per cent, clothing and footwear at 35.69 per cent, alcoholic beverages and tobacco at 31.89 per cent, health at 25.28 per cent, and restaurants and hotels at 24.66 per cent.

Only recreation and culture (8.49 per cent), education (15.04 per cent) and communication (18.22 per cent) remained in single or moderate double digits.

Mhango cautioned that the character of Malawi’s inflation problem is evolving rather than resolving.

A year ago pressure was concentrated in food; today it sits in non-food essentials — transport, energy, housing and health — categories that feed directly into production and distribution costs and carry a heightened risk of second-round effects through wages and business pricing.

Food, and housing, water and electricity together account for 77.4 per cent of the CPI basket, meaning that living costs remain the dominant driver of the headline figure.

But the persistence of double-digit non-food inflation limits how much comfort the Reserve Bank of Malawi (RBM) can draw from the topline decline.

For the central bank, the data present a case for caution rather than for aggressive easing.

Mhango argued that policymakers need to establish whether disinflation is sufficiently broad-based and durable to justify looser monetary conditions, given continuing risks from exchange rate pressures, foreign exchange availability, fuel prices, electricity costs and fiscal developments.

The analysis emphasises that Malawi’s inflation dynamics are not purely monetary. Foreign exchange shortages that raise import costs, energy constraints that lift production costs, transport and logistics bottlenecks, and weak agricultural productivity are supply-side frictions that interest rate policy alone cannot resolve.

Sustainable disinflation, Mhango said, will require coordination between monetary policy, fiscal discipline and structural reforms — improving agricultural productivity, foreign exchange market efficiency, energy supply, logistics and domestic supply chains.

The contrast with advanced economies is instructive. UK CPI rose to 3.1 per cent in August from 2.9 per cent in July, prompting the Bank of England to hold its policy rate at 3.75 per cent, while US inflation stood at 3.4 per cent, driven by gasoline prices.

Malawi’s inflation rate, even after seven months of decline, remains several multiples higher than either — underscoring that the country’s disinflation path requires policy responses tailored to structural, supply-driven causes rather than approaches borrowed from advanced-economy playbooks.

The outlook remains one of cautious optimism. Should food inflation stay contained and non-food pressures continue to ease, the headline rate should keep declining.

But renewed currency depreciation, higher international energy prices, supply disruptions or fiscal slippage could quickly unwind recent gains.

For households, the slower pace of price growth offers marginal relief, though little respite while inflation hovers near 20 per cent.

For businesses, a sustained decline would improve cost visibility and planning; for investors, durable macroeconomic stabilisation, underpinned by foreign exchange stability, would help restore predictability to the operating environment.

The immediate policy challenge, Mhango concluded, is converting what has so far been a food-led, largely cyclical improvement into a durable, broad-based disinflation that lowers the underlying cost structure of the economy and supports sustainable growth.

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