Inflation declines but pain persists
Mbongeni Mguni | Tuesday October 25, 2022 06:00
Inflation dropped to 13.8% in September, from 14.6%, largely due to the fuel price decrease effected by the Botswana Energy Regulatory Authority early last month.
However, a breakdown of inflation by Statistics Botswana suggests that the reduction in inflation was largely arithmetical as the indices tracking the prices of basic goods and services all indicate continuing pressure on the cost of living for consumers.
In the 12 months to September, average prices of food and non-alcoholic beverages were up 14.8% and within that, oils and fats were up 44.4%, while vegetable prices had increased by 21.4%.
Over the same period, the prices of bread and cereals, which include starches such as maize and sorghum, were up 18.2%, while the prices of milk and related products were up 10.2%.
However, the highest increase in prices in the 12 months to September was recorded in the transport sector, which was up 36.2%. In particular, prices associated with the operation of personal transport were up 53.1% over the period, while prices of transport services were up 28.1%.
Retail pump prices have risen eight times since January 2021, with only one reduction occurring in September, as the reopening of the global economy and the war in Ukraine have driven prices higher.
On Thursday, Bank of Botswana governor, Moses Pelaelo said inflation was expected to trend downwards from the fourth quarter of 2022 and fall within the three to six percent objective range from the third quarter of 2024.
“The projected decrease in inflation in the medium term is due to the dissipating impact of the earlier increases in administered prices, subdued domestic demand, current monetary policy posture, expected decrease in trading partner-countries’ inflation and international commodity prices,” he said.
Pelaelo, however, added that there remained upside risks to the inflation outlook, with many of the factors emanating from beyond the country’s borders.
“There is a significant risk that inflation could remain elevated owing to factors that include the potential increase in international commodity prices beyond current forecasts, the persistence of supply, and logistical constraints to production, the adverse economic and price effects of the ongoing Russia-Ukraine war, the uncertain COVID-19 profile and the tension between China and Taiwan,” he said.
Locally, factors that could keep inflation elevated include possible annual adjustments of administered prices not included in the current forecasts, short-term consequences of import restrictions, second-round effects of the recent increase in administered prices and upward pressure on wages across the economy emanating from the increase in public service salaries.
Pelaelo stressed that enhanced productivity, innovation, increased production, and the resultant competitiveness of domestic firms against imports and in international markets could contribute to lower domestic inflation.