Inflation surges to 12.7% on food, fuel prices
Mbongeni Mguni | Monday July 25, 2022 06:00
The rate of inflation in June compares to 11.9% in May, which was similarly a 13-year high.
“Applying a significant upward pressure on the annual inflation rate in June 2022 were the increasing prices for the major components in the Consumer Price Index basket, specifically Transport, Food and Non-Alcoholic Beverages, Housing, Water, Electricity, Gas and Other Fuels, as well as Miscellaneous Goods and Services,” Statistics Botswana researchers wrote in an update last Friday.
The Botswana Energy Regulatory Authority has said Russia’s invasion of Ukraine and the resultant sanctions on Moscow have disrupted global oil markets, pushing crude prices rapidly since February 24 when the attack began.
The pula’s weakening against the dollar this year has worsened the situation, with the local currency losing more than eight percent of its value against the greenback which is the currency used in the global oil market. The National Petroleum Fund, a statutory buffer traditionally used to lessen the cost volatility of oil on local pump prices, has also been running at low levels.
Food prices, meanwhile, have been steadily rising since the supply challenges caused by COVID-19 and have worsened in the wake of the Ukraine invasion, particularly around key commodities such as wheat, cooking oil, and others.
Kgori Capital portfolio manager, Kwabena Antwi said inflation continues to trend above the asset management and consultancy firm’s expectations. Kgori Capital had forecast June inflation at 11.7% and now expects the rate to peak at above 14% for the year.
“Inflation continued to trend above Kgori expectations due to much higher-than-expected transport and food Inflation,” he said in a commentary this week. “We expect inflation to accelerate in the short term as the June 2022 statistics did not factor in the June 28 increase in pump prices. “We then expect inflation to decelerate and fall within the BoB’s objective range in the fourth quarter of 2023.”
The Bank of Botswana (BoB), whose mandate includes managing inflation, has declined to state how high it expects inflation to rise this year but expects the rate to decline to the three to six percent objective range by the third quarter of next year.
“I don’t want to give a specific number and say how high it will get before then because there is so much volatility and prices of food and fuel are going up all the time,” the BoB’s Research and Financial Stability director, Lesedi Senatla told BusinessWeek at the central bank’s last media briefing in late June.
Analysts at Kgori Capital expect that the BoB will continue raising interest rates to combat the rising inflation rate, with increases of up to 125 basis points possible for the rest of the year. The central bank has already raised interest rates twice this year, by a combined 101 basis points, to clamp down on inflation expectations.
“With inflation rising, there could be expectations of inflation continuing to rise meaning that businesses price this into their products and services, leading to higher inflation,” deputy governor, Tshokologo Kganetsano told BusinessWeek at the recent briefing.
President Mokgweetsi Masisi, meanwhile, has promised that his administration will unveil a “raft of measures” to provide relief from the high inflation. Masisi said the measures would be unveiled upon his return from the US-Africa Summit in Morocco, which ends today (Friday).
“The biggest issue is fuel and we want a raft of measures because inflation has gone beyond our range,” he told journalists at the weekend Botswana Democratic Party national council. “We are very mindful that this inflation is going to affect farming and food production and we have to be thinking about this ahead of time. “We are going to put in a raft of measures to cushion you.”