Inflation blah... blah... blah...

Lewanika Timothy | Monday October 30, 2023 06:00

In just a year, the price of a carton of milk has soared to over P20 while the price of cooking oil has increased by over 50% and all the central bank can say to the battered consumer is economic jargon like base effects, bank desirable rate blah... blah... blah...

Bank of Botswana economists, who are regarded as “the men in the arena”, whose faces have to be marred with blood and sweat when price increases come to haunt consumers, have been fighting a losing battle as their sleeve-up tussle against inflation has yielded little price relief for consumers.

The boxing match scenario is a shadow depiction of what Batswana consumers have been going through since COVID-19. Inflation has been a pain in the pocket leaving local consumers with less to buy with, amidst a punishing economy.

Last week Statistics Botswana pegged September inflation at 3.2 percent, an increase from the previous month’s 1.2 percent. The leading contributor to inflation was food prices which have been a nightmare for many customers ever since the price stampede began after the pandemic.

“The annual inflation rate stood at 3.2 percent in September 2023, an increase of two percentage points compared to 1.2 percent in August 2023. “The major contributors to the annual inflation rate in September 2023 were food and non-alcoholic beverages as miscellaneous goods and services,” Statistics Botswana reported.

The above figures are factual and constitute sound economics. It is the result of following a rigorous statistics apparatus that helps in monitoring economic activity.

However, the data is out of touch with the pinch that consumers are going through and the pain they experience every time they walk into a retail store, where the price of a Maxi loaf of bread now costs P20.

Notwithstanding the out-of-touch economic apparatus and fancied economic jargon that often leaves pain-pressed consumers more confused, the Bank of Botswana team in the arena is surely not having it easy. The price hikes that have been going on are the result of spillovers from international instabilities that unfortunately have nothing to do with Botswana.

Inflation is a simple word meaning the general price movement of a basket of goods and services in the economy and it has different types. Currently, the inflation the world is experiencing is supply shock inflation, which is the result of suppliers of international commodities hiking prices due to increased costs of production which in turn makes prices of commodities skyrocket in the market, a situation which makes working in the central bank a nightmare.

For the consumer, the gulf will continue to widen, the centre is predicted to continue to fail to hold and things are surely going to fall. The Russia-Ukraine war, which has notoriously driven up the prices of goods like wheat, cooking oil and fuel, is still ongoing and has brought political opponents to a stalemate as Russian leader, Vladimir Putin, stubbornly refuses to bow to international political pressures to stop the invasion.

This means more price instability, especially for food prices. In July this year when annual inflation dropped to a 35-month low at 1.5 percent, from 4.6 percent in June, annual food inflation told a different tale and was measured at 10.7% in July, down from 12.9% in June. This indicated that food prices remain elevated and their decline is far slower than other items measured by the Consumer Price Index.

On Thursday, after a sitting of the Monetary Policy Committee (MPC) which decides interest rates, new BoB governor, Cornelius Dekop, said that risks against inflation remain “heightened to the upside” which means that prices will likely keep rising in the face of broad instability in markets.

“The MPC observes that inflation could be higher than projected if international commodity prices increase beyond current forecasts, supply and logistical constraints persist and the reversal of global economic integration escalates,” he said. “Furthermore, a possible upward adjustment in prices controlled by government (for example, electricity and water tariffs) that is not factored in the current projection, may lead to higher inflation.”

Graphs shared by the central bank this week indicate that going into the last quarter of the calendar year, inflation will track towards five percent and ultimately nudge higher from the last quarter of 2024 going through to 2025. Despite the inflation expected to remain within the BoB’s target range, retail pump prices, January increases in private school fees and rentals, are just some of the factors expected to upset the central bank’s forecasts.

In addition, all eyes are on the Israeli conflict in the Gaza region, which threatens to boil over into a regional war pitting Iran and other Muslim sympathisers against Israeli backers such as the United States.

Analysts at Kgori Capital believe the BoB’s policy wars against inflation may lead to a dampened economic environment with investors seeing the climate as too hostile thus yielding negative returns for the economy. In economic theory, cutting interest rates helps stimulate economic activity as it allows people to take up more loans and increase spending in the economy, which in turn stimulates growth.

“There is a slowdown in the absorption of bank credit by businesses as compared to other years and this year the figures are at 14-year lows while household credit is also slowing further down due to the high interest rates that have been put in place by Bank of Botswana as the fight against inflation continues,” Kgori analysts said.

The central bank has to balance the various variables, while at the same time bearing in mind the long-suffering consumer for whom inflation is more than just a number on a graph.