Inflation falls to BoB range

Brian Benza
Staff Writer | Thursday July 18, 2013 00:00

 

Figures released by Statistics Botswana (SB) indicate that the June annual inflation rate fell to 5.8 percent from 6.1 percent in May, settling within the Bank of Botswana's 3-6 percent inflation target. 'The annual rate of 5.8 percent realised in June 2013 was lower than the 7.3 percent recorded during the same month in 2012. The decrease on the overall annual rate came from stable prices of commodities especially major components such as transport, food and non-alcoholic beverages, which decreased by 2.5 and 2.8 percentage points respectively,' said SB in a statement.

This means general prices have risen by a lower rate of 5.8 percent between June last year and June this year compared to 6.1 between May 2012 to May 2013.Although the modest monthly inflation rate of 0.2 percent played a part to lower annual inflation rate for the month, the falling away of the 2012 large price increases from the calculation was the key factor in the 0.3 percentage drop in the annual rate. According to SB, group indices were stable between May and June 2013, recording changes of less than one percent. The Housing, Water, Electricity, Gas and Other Fuels group index recorded the highest increase of 0.8 percent. This is attributable to the revised water tariffs, which were effected on June 1, 2013.

'The June inflation rate is in line with expectations. Our forecast for June was 5.9 percent.Underlying inflationary pressures are low, and the June 2013 monthly increase was lower than the June 2012 increase, hence the annual rate dropped.'We expect it to remain within the BoB range for the rest of the year, although there is a risk from higher fuel prices,' said local economist Keith Jefferis.The falling of the annual inflation to below the six percent level is in line with Bank of Botswana estimates, which had forecast consumer inflation to fall to within the range before year-end. 

The bank expects that non-mining sector expansion will remain below potential in the medium term and therefore exert minimal inflationary pressure.In addition, the impact of demand on economic activity is forecast to be modest, reflecting trends in government spending and personal income. In Botswana, domestic demand has been moderate as households income has stagnated while room for further credit expansion has been limited due to saturation. The Bank of Botswana sees external inflation pressures in 2013 as 'modest' and believes that when this is combined with weak domestic demand, inflation should reach the target range in the second half of the year.

However, the BoB has also been quick to point out the fragility of its forecasts saying this outcome could be adversely influenced by any unanticipated large increase in administered prices and government levies, as well as international food and oil prices increasing beyond current forecasts. On the back of sluggish economic trends, the Bank of Botswana has cut the bank rate by 100 basis points this year in an effort to reignite the flagging economy. The rate had remained constant since a reduction in December 2010.