National Bank of Malawi raises inflation wary

National Bank of Malawi (NBM) has raised fears that the country might not be able to attain the set five-percent inflation rate target due to stickiness in non-food inflation.

The bank raised the fears in its edition of Economic Newsletter for the month of February, 2018 following a decline of non-food inflation by  five percentage points in 2017.

NBM, listed on Malawi Stock Exchange (MSE), noted in the newsletter that recent electricity tariff hike coupled with pressure to increase liquid petroleum product prices and rising maize prices, remain a risk to attaining the inflation target.

“This upward pressure in non-food inflation is likely to intensify with the approved 24 percent electricity tariff hike coupled with pressure to increase liquid petroleum product prices with the adoption of more expensive premium environmentally friendly liquid fuel products and the inclusion of Jet –A1 fuel in the Fuel Price Stabilization Fund,” notes the bank in the newsletter.

The bank has since argued that the economic positives recorded in 2017 due to low food prices were also in danger of being eroded with maize prices that have increased by 40 percent this year.

The maize price increase is perpetuated by expected low harvest as a result of the army worm outbreak and intermittent rainfall which has affected an estimated 645 hectares according to the Ministry of Agriculture.

Overall non-food inflation has declined from 15 percent in January 2017 to 10 percent in December 2017, while food inflation declined from 21 percent to 4.3 percent over the same time period.

Annual average headline inflation declined from 21.7 percent posted in 2016 to 11.5 percent in 2017. Ostensibly, the decline in food inflation has been the major driving factor in the downward trajectory taken by inflation in the just ended year.

Malawi recorded a headline inflation of 7.1 percent in December 2017, representing a decline of 0.6 percent from the previous month while urban and rural inflation rates in the month stood at 6.8 percent and 7.6 percent respectively.

Meanwhile, the bank says it expects the Monetary Policy Committee (MPC) meeting scheduled for next month to maintain interest rates at current levels, given the expected increase in inflation at the turn of the year as alluded to above, depending on the actual inflation outturns in the first quota of 2018.

National Bank of Malawi projects a stable kwacha at about K725 against the United States dollar; meanwhile it is trading at K733.

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