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| Business |
| Inflation rate slumps 0.3 pts |
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by
Ephraim Munthali, 25 August 2005
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08:04:19
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Malawi’s year-on-year national inflation rate for year ending July 2005 slumped 0.3 percentage points as pressure on the food index continued to dampen.
The National Statistical Office (NSO) said on Wednesday the July rate fell to 15.6 percent from 15.9 percent in June.
The office said national month-on-month food index from June to July dropped two percent, a decrease that is slightly higher than that recorded at the same time last year.
“The continuing downward trend in food inflation is beginning to have an impact on overall inflation,” said NSO.
Despite the declining trend in food inflation, prices of the other commodity groups continued to surge.
For example, the transport group jumped 2.2 percent mainly owing to lagged price increases in transportation costs and spare parts.
In addition, the housing group rose 1.7 percent due to price adjustments in some household appliances and hardware products.
For the rest of the commodity groups, price increases ranged from 0.3 percent to 0.8 percent.
With food inflation projected at 19.2 percent by end December this year, authorities expect commodity price rise to average 14.5 percent in 2005—up from 11.5 percent in 2004 and 9.6 percent in 2003.
In the medium term, authorities’s monetary policy aims at bringing down inflation to the 5-8 percent range by 2008.
Finance Minister Goodall Gondwe is pinning his hopes on favourable weather conditions and the irrigation programme to boost food production, improve the inflation outlook and help cut interest rates.
The continued acceleration in overall inflation is forcing the Reserve Bank of Malawi to tighten its grip on monetary policy—a move that has kept interest rates intact at the benchmark 25 percent for 15 months now.
Food inflation aside, government’s domestic borrowing position and the expected rise in fuel prices remain stumbling blocks to lower commodity prices interest rates.
Oil industry sources say the fuel stabilisation fund—which has cushioned fuel price rises in recent years, has been depleted—meaning that pump price increases are now a matter of time.
In its latest economic report, National Bank of Malawi (NBM) said general hikes in government spending, the pro-poor public works job creation programme, payment of arrears and Malawi Rural Development Fund will raise inflation.
“These initiatives do accelerate money supply growth, which in the short run cannot be absorbed in the system by sudden increases in capacity to produce,” said the bank.
The beginning of a new medium term funding package with International Monetary Fund (IMF)—Poverty Reduction and Growth Facility—is expected to ease budgetary pressure and reduce the K60 billion domestic debt.
But NBM said since the Fund’s facilities are usually accompanied by issues of a market determined competitive exchange rate, (and given the widely held sentiments that the kwacha is over valued), the expected depreciation will significantly add to imported inflation.
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