The Nasty Nuances of Malawi’s Abating Inflation

Updated: Jan 21


The Malawi Government has gone to town on the recent reduction of the inflation rate in the country, which has reportedly hit 8.3%. It is common sense how lowered prices should be welcomed with open arms as a means to alleviating diminished consumer choice, and a forward thrusting of capabilities to drive productivity. While advancing a political story line that projects the Democratic Progressive Party’s (DPP) competency to improve the affordability of goods and services, the DPP government is shy to share what hides between the lines, which is why the fallen inflation may not reflect improved living conditions of the very Malawians whose purchasing power has supposedly increased.

This website laments the never-ending attempts by the DPP and its predecessor governments to sugarcoat developments that the common Malawian will ever hardly benefit from. Particularly, as the rhetoric is founded on the assumption that inflation is a virtuous result of government’s hard work and altruism for the people it works for. Yet, it ignores other important economic shifts that automatically override the positive effects of stabilized prices.

Perhaps the most compelling of these economic realities would be the observable inflation trend as viewed in light of the relationship between aggregate demand and national output. Historical economic data shows how aggregate demand has consistently remained above national output, leading to a positive rate of inflation. Economic theory demonstrates how this relationship critically implies how inflation should remain positive and why, for a developing country, rising inflation is not necessarily a bad thing for development. However, falling inflation, at a time when national output is on the decline or under the threat of it (as we will explain below), is likely a result of falling aggregate demand, meaning the sum of our real public, investment and net exports may not be spinning enough positive effects to hold inflation steady or on the up. And there are many reasons that could explain why every development shows a rocky economic path for producers, consumers and workers alike. And this should be worrying for every nation-loving Malawian.

Malawi’s private sector is naturally expected to drive employment in the country. However, the structure of our private sector leaves a lot to be desired in this respect, and requires some scrutiny if appropriate understanding of the situation would be achieved. The Country Note for Malawi in the 2017 Africa Economic Outlook by the Africa Development Bank (AfDB) notes that, out of the approximately one million enterprises in the country, 59% remain small microenterprises and that only 41% of them generate jobs. As 85% of these enterprises are located in rural areas, it is unsurprising how most employment emanating from these businesses characterizes as informal and skips being captured in key national economic trends such as inflation.

To back the argument are the international labour statistics by the International Labour Organization (ILO) that show, for Malawi, unemployment in Malawi rose from 6.36% in 2012 to 6.74% in 2016. The impact of unemployment on the spending power of the population is partly indicative of reduced demand, and the consequential effect of spiraling down supply of goods and services. However, the sluggish economic growth outlook may perhaps have stronger explanatory power on why inflation is impacted towards a downturn, as consumer and producer confidence wane in the face of deteriorating economic prospects.

The situation remains, however, that Malawi’s private sector is itself on life support for it to boost demand through employment and redistribution of income. And in an era where the country’s infrastructure (see our article on this here) and business friendliness (see our June 2017 piece on this subject here) hardly support the growth of enterprises and, in so doing, downwardly driving employment and demand, it is natural that the realized fallen demand arising from depressed potential earnings by individuals would inadvertently pressure prices downwards.

Let us take some time to consider the dwindling and erratic energy supply. The limited access to electricity by many of the enterprises we describe above, which reappeared with a vengeance at the dawn of Peter Mutharika’s presidency, only increases the vulnerability of doing business in Malawi. Unfortunately, weak electricity supply is affecting major industries and smaller ones alike. Cement production is one such industry that has been hard hit, driving prices of cement upwards - from an average of MK6,200 to approximately MK10,000) as they have responded to leftward shifts in supply, opposite of the celebrated inflation drop. The cement price changes have only translated into high construction costs for the ordinary Malawians investing in housing. Additionally, there will be many microenterprises that depend on electricity for trade and provision of services that risk shutting down in the face of electricity scarcity, especially when they cannot turn to cheap alternative forms of energy to support their activities.

Based on the foregoing, it becomes clear that lower inflation in Malawi is not necessarily a proponent of improved wellbeing, but, rather regrettably, quite the opposite. Unfortunately, in light of all individuals that stand to lose employment or income from reduced economic activity, lower inflation will still not be meaningful in the face of absent income. There are, however, very few individuals who will continue to avert the electricity disaster, either because they can afford a power generator or an inverter. This cadre of Malawi’s rich will stay resilient and easily profit from their unique positions of privilege to conduct business activities or have their children study at night. For ordinary citizens, this means a worsened position of vulnerability and subjectivity to government’s narrative that is always designed to hoodwink them on the rhetoric that the economy has never seen better days.

An accentuation of the positives that lower inflation rates bring to Malawians is a message that mainly resonates with those with the ability to earn and who may, unlike everyone else, feel the benefits of fallen living and business costs. Lower inflation makes sense to the business interests that sponsor the portly pockets of the elites and their political parties.

One would fathom lower rates of inflation signaling savings on the part of government to stimulate financial investments in the energy sector to improve electricity generation and distribution. Yet, every indicator of government’s current priorities does not signal the appetite to quell the country of this plague that is affecting the potential of every dimension of livelihood. Our readers who took time to read the Independence Day article will see the mechanics of the growing inequality in Malawi that show how disproportionate impacts of national economic variables render themselves to different parts of our society.

This time, unfortunately, the much-touted display of the DPP’s power to “stabilize the economy” can only be celebrated at Kamuzu Palace and in the abodes of the powerful and privileged. They are not a laughing matter for the regular Malawian, whose living standards offer a promise of nothing but a sworn decline.

So, year-on-year inflation drops a mere 0.1% in October 2017 from the month preceding, and only Mr. Mutharika is able to see economic stability. We, Malawians, must be a joke to believe in this.

#ECONOMICSANDDEVELOPMENT #POLITICS

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© 2017 by Tiunike Online, a website of Paulwilliams Associates.

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