Malawi’s inflation rate threatens RBM’s monetary policy direction as it rises to a 3-month high in January 2025–Chief Economist Chifipa Mhango

The Reserve Bank of Malawi

* Consumer price inflation rate rose to 28.5% year-on-year in January 2025, up from 28.1% in December — marking the highest rate in three months

* According to National Statistics Office (NSO), the increase was primarily driven by rising food costs at 36.0%, a surge of 0.4% from the previous month

* Which was attributed to increase in maize and its products, such as maize flour, alongside rice, bread, cooking oil, tomatoes, and other vegetables, which can be classified as basic commodities

By Duncan Mlanjira

The inflation rate in the Malawi economy has risen to a three-month high in January 2025, threatening monetary policy direction of the Reserve Bank of Malawi (RBM), observes Don Consultancy Group (DCG) Chief Economist Chifipa Mhango.

Mhango, who is DCG Director of Economic Research & Strategy, said this in a statement issued this evening — copied to RBM Governor and his Deputy; Minister of Finance & Economic Affairs; Minister of Trade & Industry and the media.

He quotes latest inflation rate data released by RBM on its website, which shows that consumer price inflation rate rose to 28.5% year-on-year in January 2025, up from 28.1% in December — “marking the highest rate in three months”.

“The increase, according to National Statistics Office (NSO), was primarily driven by rising food costs at 36.0%, a surge of 0.4% from the previous month, attributed to increase in maize and its products, such as maize flour, alongside rice, bread, cooking oil, tomatoes, and other vegetables, which can be classified as basic commodities.

“This is worrisome for the ordinary Malawians and the masses that are already living in impoverished conditions, with no source of income due to the high unemployment levels of 91% for the entire workforce.”

The Chief Economist further observes that Malawi’s commodity price increases “are across the board, with prices for non-food items also surging in January 2025”.

“The economy experienced a surge in non-food prices to 16.9%, from 16.8% in the previous month of December 2024, as per data schedule,” he said. “These high costs are mostly in restaurants and hotels, clothing and footwear, furnishings and household items, as well as housing, water and electricity.

“This is reflecting the hardship facing the entire Malawian society, from businesses to consumers, as costs of living escalate. In overall, consumer prices moved 4.7% in January 2025, following a 4.5% advance in December 2024 on a monthly basis.”

He added that although the “may have the hope of food prices declining in the next few months, as harvest period approaches, such is not guaranteed, as past seasons have demonstrated that climate change has provided unpredictable future projections on harvests”.

“It will also be challenging for the RBM to consider interest rates reduction soon, considering that the current inflation rate in Malawi at 28.5% is way above the 5% level that RBM targets as appropriate.

“The RBM is facing this dilemma to contain inflation rate in Malawi, which is the 10th highest rate in world and 4th highest in Africa, with its policy lending of 26%, currently 8th highest in the world and 5th highest in Africa — thus putting tremendous pressure on the price stability mandate of the RBM.

“The situation is further worsened by the country’s exchange rate environment and rising import bill,” he said, adding that It also has to be noted that “containing price stability is even more challenging, as prices or cost of living in the Malawi economy are reflective of the parallel foreign currency market”.

This parallel forex market is estimated at over MK4,000 to the US$, as a major trading currency, while the official RBM exchange rate is around MK1,750’to the US$.

“Such disparities in exchange rates, puts RBM’s key function responsibilities (price stability) out of its reach. Curtailing parallel foreign currency market activities, therefore, becomes the key responsibility of the RBM towards a stable monetary policy environment in Malawi.”

The DCG Chief Economist concludes by advising — as he has always done — that  “Malawi’s fight against rising cost of living requires alignment of fiscal policy, trade and industry policy, but also strict enforcement of the laws to curtail parallel foreign currency market trading, with efforts geared towards policy implementation than just a fictitious approach”.