Business

A year in the jaws of a cost of living crisis

Annus horribilis: Consumers are enduring the highest rates of inflation since 2008 PIC: MORERI SEJAKGOMO
 
Annus horribilis: Consumers are enduring the highest rates of inflation since 2008 PIC: MORERI SEJAKGOMO

One story dominated all others in the discourse about the economy this year and with good reason.

Unlike other economic topics which often involve technical jargon that limits discussions to those “in the know”, inflation or the cost of living does not require degrees to be felt, understood, and suffered.

Inflation does come with its own jargon, however. Experts at various think tanks speak in terms of base effects, knock-on effects, and transitory effects.

The Bank of Botswana (BoB) frequently uses the phrase “risks skewed to the upside” to describe the direction it expects inflation to take in the short to medium term.

Other BoB phrases such as “entrenched expectations” and “increases beyond current forecasts” are all frequently cited in the commentary around fighting inflation.

What ordinary consumers understand is the pain in their pockets. But how bad did it get this year in layman’s terms?

Going by Statistics Botswana figures, the average prices of oils and fats, a category that covers cooking oil and margarine, have risen by more than 40% in the last 12 months.

Average vegetable prices are up 23% over the same period while breads and cereals (rice, maize, sorghum etc) have increased by 22%. Fuel is up by about 40%, although this figure also includes the two recent reductions in retail pump prices.

The percentage increases are averages and therefore mask the actual reality consumers find in the different shops and regions of the country. For instance, a two-litre bottle of the popular Excella cooking oil ranges from P57.95 to P117.95 depending on the shop and the location, the former being Lobatse and the latter being Francistown.

Similarly, a 12.5-kilogramme bag of White Star maize meal ranges from P94.95 to P139.95 depending on the shop and its location.

For the technocrats or those watching the numbers, the rise in the cost of living is measured by the rate of inflation. Inflation began the year at 10.6% and peaked at 14.6% in August, the latter number representing the highest level since November 2008.

Since then, inflation has declined to 12.2% in November, but like the analogy of the speeding car, this number still represents the highest level since January 2009, or nearly 14 years ago.

The forces driving inflation this year have largely been food and fuel prices, mainly the result of Russia’s invasion of Ukraine in February. However, residual supply bottlenecks from the pandemic period also added momentum to inflation this year, while for Batswana, the pain actually began in April 2021 when government unleashed a wave of tax, levy, and tariff increases.

Statistics provided by the central bank and economists at other organisations such as the World Bank all point to the fact that global food and fuel prices have eased in recent months. The BoB, which has been hesitant to publicise detailed forecasts of where inflation could land, has opened up recently as the numbers have begun dropping.

BoB executives recently told BusinessWeek that inflation would average 11.4% in the first quarter of next year, 8.8 percent in the second quarter and seven percent in the first quarter of 2024. The bank expects that inflation will decline to 5.8 percent in the third quarter of 2024, officially returning to the three to six percent target range for the first time since April 2021.

“Part of the drivers of inflation are beginning to peter out of the calculation, as we have been saying that inflation will begin to come down,” Research and Financial Stability director, Lesedi Senatla said recently.

“From June, we have been saying that and you are witnesses that inflation is beginning to come down. “However, this projection is conditional on what we know now and we don’t know what we don’t know, such as shocks involving COVID-19 going out of kilter.”

As with the analogy of the speeding vehicle, the anticipated fall in inflation in layman’s terms means the rate of increase in prices will slow down, not that prices will drop. Even with the positive forecasts, the BoB has noted that there are numerous risks to the cost of living outlook going forward. One key risk is that the bank’s projections are based on what it knows and it cannot factor in what it does not know.

“If the arrangements around easing supplies out of the Ukraine conflict don’t materialise, then that’s a pressure on inflation,” the bank’s deputy governor, Kealeboga Masalila told BusinessWeek.

“If the tensions around China and Taiwan, whether tensions around a potential problem or an actual boxing match, occur, then that’s a problem for inflation.

“We know what we know now about administered prices, but if there are numbers above what we project, then we will get higher inflation.

“If inflation expectations remain elevated and prices go up by a larger quantum, or wages rise sharply, then there could be a problem in inflation.”

In fact, consumers can expect several increases in administered prices in the new year, which will add some pressure on the cost of living. The Botswana Power Corporation has asked the Botswana Energy Regulatory Authority to approve two consecutive tariff increases of five percent each for the 2022–23 and 2023–24 financial years. The Botswana Housing Corporation, meanwhile, will raise its rentals next April and in 2024, as part of a phased effort to achieve market parity. The Water Utilities Corporation could also ask government for more tariff adjustments.

Even as its speed is declining, the car’s engine is expected to rev early next year, before continuing its slow down.