Malawi inflation rising,hits seven-year high in May

Consumer prices in Malawi jumped to a seven-year high in May as fuel and electricity costs shot up after the kwacha currency was devalued by more than 30 percent in early May.

The National Statistics Office said headline inflation accelerated to 17.3 percent year-on-year in May from 12.4 percent in April.

Malawi scrapped its currency’s peg to the dollar at the start of May, trying to reignite economic growth and appease the International Monetary Fund, which had long said the kwacha was grossly over-valued.

Lipenga: Price increases were likely to accelerate to 18.4 percent

Core inflation, which excludes food prices, was at 21.8 percent in May from 5.7 percent the previous month.

“This is owing mainly to recent upward price adjustments of electricity, gasoline, household operation, beverages, tobacco and recreation services,” the statistical agency said in a statement on its website.

The devaluation was ordered by new president Joyce Banda to fix relations with the IMF and external donors that had broken down under her predecessor, Bingu wa Mutharika, who died in April.

At the time of the devaluation the central bank said it did not expect the currency reform to be inflationary as most commodities were already being traded at the black market rate.

However, Finance Minister Ken Lipenga has since more than tripled his inflation forecasts for the year, saying price increases were likely to accelerate to 18.4 percent from previous expectations of 6 percent.

He said inflation had come in at 10.2 percent in 2011.

Aid has started to flow back into the impoverished southern African nation, with donors pledging $500 million in budget support for this year, more than double their assistance for the 2011/12 budget.

Earlier this month the IMF agreed to a three-year, $157 million package to support the economy.

The government estimates the economy grew 4.3 percent in 2011, compared to expectations of 6 percent, as fuel and foreign exchangeshortages cramped business activity.

This year growth is expected to remain steady, in line with the IMF’s forecasts at 4.3 percent.

The central bank has raised interest rates by 300 basis points to 16 percent to try and contain the price pressures.

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