Headline inflation—the rate at which commodity prices change at a given time in an economy—is expected to remain elevated due to rising food prices, the World Bank has said.
In the 19th edition of its Malawi Economic Monitor (MEM)—a bi-annual report that provides an analysis of economic and structural development issues— the Bretton Woods Institution says the headline inflation would average 30 percent in 2024.
The projection is, however, lower than a 33.5 percent recently revised annual inflation estimate by the Reserve Bank of Malawi (RBM).
The World Bank says diminished agricultural output and continued upward pressure on food prices this year is eroding the disinflationary impact of tighter monetary policy the central bank adopted.
Malawi faces acute food shortage this year with over 4.2 million people at risk due to El Niño-induced drought and flooding in some parts.
Scarcity of maize, Malawi’s staple crop, has piled pressure on market price which has risen by an average 64.5 percent between April and July 2024.
The surge has also weighed heavily in the Consumer Price Index, a basket for computing inflation, leading to a rise in food inflation.
“In addition, further increases in energy and other utility prices in line with pricing formulas could compound inflationary pressures in 2024, and additional monetary financing of the fiscal deficit poses inflationary risks,” reads the World Bank report.
The projection comes as the fiscal deficit is, however, expected to moderate to 7.0 percent of gross domestic product. But the World Bank says the forecast is subject to several downside risks.
In its Monetary Policy Statement issued last week, RBM said rising food inflation continues exerting pressure.
Figures in the statement, however, show that headline inflation in the second quarter of 2024 averaged 32.8 percent, 0.6 percentage points lower than 33.4 percent in the previous quarter.
This followed easing in pressure on food inflation which declined to an average 40.7 percent, having averaged 41.9 percent during the first quarter of 2024.
“However, the committee observed that within the second quarter of 2024, headline inflation accelerated to 33.3 percent in June 2024 from 32.3 percent in April 2024, reflecting rising food inflation, while non-food inflation remained relatively low and stable at around 22 percent over the same period,” the statement reads.
In a recent interview, Economics Association of Malawi President Bertha Chikadza said rising food inflation continues to pile pressure on headline inflation. Economist Marvin Banda said food prices are expected to remain elevated as the country is in its lean season.
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