An analysis of the dynamics of petroleum prices and inflation in Malawi

Owing to the immense negative effects brought about by inflation on the economies globally, politicians and policymakers are preoccupied with finding ways of controlling inflation. This study, therefore, set out to find out how prices of petroleum products, namely; diesel, paraffin, and petrol, affect inflation in Malawi. It employs the autoregressive distributed lag (ARDL) model using time series data on inflation and prices of petroleum products collected from the Reserve Bank of Malawi (RBM) and Malawi Energy Regulatory Authority (MERA). The empirical findings show that the price of petrol, the price of diesel, and the price of paraffin have a statistically positive effect on inflation in Malawi, both in the short run and the long run. These findings imply that increases in the prices of these commodities will lead to increases in inflation both in the short run and the long run. The study, therefore, recommends that policymakers need to make sure that prices of petroleum products are kept as low as possible to control inflation in Malawi. This can take the form of ensuring the existence of huge foreign exchange reserves to be used to stabilize the foreign exchange market, to ensure that the Malawi Kwacha does not depreciate anyhow.