Inflation edges northwards

Brian Benza | Wednesday September 17, 2014 12:32

This means general prices increased by an average 4.6 percent in the 12 months to August 2014.

According to figures released by Statistics Botswana this week, the annual inflation in August 2014 was lower than the 5.6 percent recorded during the same month in 2013.

“ The downward movement of annual inflation rate, between August 2013 and August 2014, was attributed to the steady prices of commodities especially the main components of transport, food and non-alcoholic beverages, which dropped by 5.5 and 1.8 percentage points respectively,” said SB.

Citing a favourably outlook the Bank of Botswana cut the benchmark bank rate by two percentage points last year to 7.5 percent as inflation, measured by Consumer Price Index (CPI), eased to a four-decade low.  

 Since last year, inflation has maintained within the BoB’s 3-6 percent objective although analysts believe that pressure from imported inflation might see the CPI trending up in the last few months of the year.

“In the mid-term review of the 2014 monetary policy statement, Bank of Botswana indicated that it will maintain its neutral policy stance in order to provide support for the domestic economy as the expansionary impact of fiscal policy is limited by restrained government spending. We maintain our view that inflation will trend upwards towards the end of the year, but will remain within the central bank’s target inflation band of between 3 percent - 6 percent, with the likely sources of upward pressure coming from imported inflation, possible increases in administered prices, as well as government levies,” stated stockbrokers, African Alliance.

In a market commentary, researchers at Rand Merchant Bank (RMB) previously said that while higher inflation has come from domestic sectors, more inflation would come through from imported goods in the coming months.

“Domestic demand is proving weaker than expected so inflationary pressure is being offset. Furthermore, risks to this forecast are now to the upside.

The main danger is we see further rand weakness, which would add to imported inflation. “Administered and food prices are also at risk and we expect the central bank to hike the bank rate by 50 basis point by the end of the year. We maintain our forecast of 4.5 percent inflation for 2014,” said analysts at RMB.

 Any upwards adjustments to the bank rate will be felt most by borrowers who have been enjoying favourable interest rates on loans since the 200 basis point bank rate cut last year. A decision on any review of the bank rate is expected at the next Monetary Policy Committee (MPC) meeting to be held next month.

At the last MPC meeting held in August the central bank said that Botswana’s output growth is estimated at 5.9 percent in the 12 months period to March 2014, reflecting the 14.2 percent and 4.6 percent increase in mining and non-mining output, respectively.  It is anticipated that non-mining economic activity will be below potential in the medium term.

“The impact of domestic demand on economic activity is projected to be modest, largely indicating trends in government expenditure and personal incomes.

“Weak domestic demand and the projected benign external price developments result in a positive inflation outlook for the medium term,” said the central bank.

However, the bank noted that this outlook could be adversely affected by any unanticipated increase in administered prices and government levies, as well as international oil prices that are higher than currently forecast.