Fight against food inflation not yet over
Lewanika Timothy | Tuesday August 8, 2023 06:00
In June, inflation cooled to 4.6 percent continuing within the central bank’s objective range and representing a 22-month low. Inflation has been declining in recent months due to decelerating food and fuel prices, as well as the base effects associated with increases in fuel prices last year.
In the calculation of annual inflation, base effects relate to inflation in the corresponding period of the previous year, which if abnormally high, distorts the measurement of inflation in the current period.
On Thursday, Kgori Capital investment analyst, Kitso Mokhurutshe, told a media briefing that while broad inflation has been sliding, it is expected that food inflation will soar beyond six percent in the next quarter as the fog of macroeconomic stability has not cleared in commodity markets. “Inflation base effects will fade away and inflation will slowly go up,” he said. According to Mokhurutshe, supply side constraints will continue to act as bottlenecks in the fight against inflation due to the ongoing war in Ukraine.
This war, according to Mokhurutshe, will impede perfect market supply of commodities in the globe causing food prices to soar. “Recently Russia pulled out of its grain deal promise and immediately prices of wheat rose by eight percent and this contributes to our forecasts on why we believe food inflation will continue to climb,” he added.
For its part, the Bank of Botswana (BoB) expects broad inflation to remain within the three to six percent objective range going into the medium-term, due to easing price pressures and base effects. Food and non-alcoholic beverages are a major component of the inflation calculation and are assigned a weighting of 13.55% of the total inflation basket.
Mokhurutshe said the BoB’s forecasts for inflation were unlikely to hold due to pressure on food prices in the short-term. As at June, annual food inflation was pegged at 12.9%, far higher than broad inflation of 4.6 percent. By that time, prices of key commodities such as vegetables, bread, cooking oil and meat were all up by double digits compared to their levels from June 2022.