The Maldives saw its annual inflation rate accelerate to 1.3% during the third quarter of 2024, compared to just 0.3% in the previous quarter. This notable rise, reported in the Maldives Monetary Authority’s Quarterly Economic Bulletin, highlights the growing influence of sector-specific price pressures on the nation’s cost of living.
Key Drivers of Inflation
The primary contributors to inflation during Q3 were energy-related costs, food prices, and healthcare expenses. Energy prices rose significantly, with a 4.7% increase in electricity costs following the end of Ramadan-related discounts earlier in the year. This surge reflected higher energy consumption during the quarter.
Food prices, which account for 23.5% of the Consumer Price Index (CPI) basket, remained elevated. Although the annual growth in food prices decelerated slightly from 6.5% in Q2 to 6.3% in Q3, key categories such as fish (up 10.4%) and vegetables (up 17.4%) saw substantial increases. Supply shortages in lime, onions, and chilli were significant factors driving vegetable prices higher.
Healthcare costs also rose, contributing 0.2 percentage points to the inflation rate. This was primarily due to higher outpatient care fees, although it was partially offset by a decline in medicine prices during the quarter.
Areas of Decline
Offsetting these upward pressures, the information and communication sector experienced a 7.8% decline in prices, driven mainly by reduced mobile broadband costs. This contributed a downward pressure of 0.7 percentage points to the overall inflation rate.
Broader Context and Future Outlook
Looking ahead, inflation is projected to moderate to 0.9% in Q4 2024 and 0.8% in Q1 2025. However, the planned implementation of subsidy reforms in Q2 2025, involving the removal of subsidies on staple foods and electricity, is expected to drive inflation significantly higher, with a forecasted rate of 5.2% for Q2 2025.
These changes underscore the importance of preparing for potential economic shocks, particularly for vulnerable households. The upward pressure on prices may also be exacerbated by global uncertainties, such as the potential impact of conflicts in the Middle East on commodity markets.
The Q3 inflation figures reflect the complex interplay of domestic and international factors influencing the Maldivian economy. As the government prepares to implement structural reforms, targeted support mechanisms and robust monitoring of global trends will be crucial to mitigating the impact of rising costs on households and businesses alike.
