Alcohol, tobacco levies push inflation up
Brian Benza | Tuesday March 18, 2014 11:29
According to figures released by Statistics Botswana, all group indices were stable between January and February, recording changes of less than 1.0 percent except for alcoholic beverages, tobacco & narcotics group index, which increased by 2.2 percent.
“This was due to a general increase in the constituent section indices of alcoholic beverages (2.4 percent) and tobacco (0.4 percent),” said SB in a statement.
On the back of last December’s increase in the Alcohol Levy, KBL effected a deffered 5 percent rise in alcohol prices while cigarette prices also went up in February due to a 30% tobacco levy imposed by governmenet last month.
Despite the marginal February annual inflation increase, the annual rate of 4.6 percent was lower than the 7.5 percent recorded during the same month in 2013.
The decrease on the overall annual inflation rate between February 2013 and February 2014 was influenced by stable prices of commodities especially major components such as transport and food and non-alcoholic beverages.
At its February sitting, the Bank of Botswana Monetary Policy Committee left the bank rate unchanged at 7.5 percent citing a favourable inflation outlook.
According to the central bank, moderate domestic demand and the forecast benign external price developments contribute to the positive inflation outlook in the medium term.
While Botswana’s GDP growth in the 12 months to September 2013 is estimated at 5.9 percent due to a rebound in mining production at 11%, it is expected that non-mining output will remain below potential in the medium term and generate low inflationary pressures.
“The influence of demand on economic activity is projected to be moderate, largely reflecting trends in government expenditure and personal incomes. However, this outlook could be adversely affected by any unanticipated large increase in administered prices and government levies, as well as international food and oil prices increasing to levels beyond the current forecast.
An increase in demand and inflation expectations arising from a substantial wage adjustment could also change the outlook for inflation,” said BoB. A rebound in the South Africa economy is also expected to export inflationary pressure to Botswana.
According to RMB Global Markets Research ,risks to the Botswana’s inflation outlook come from South Africa where inflation has been contained by weak economic growth thus far, preventing a spillover into Botswana.
“We expect inflation to average 4 percent over the medium term — a level that would be consistent with 2 percent inflation in the developed world, 5.5 percent in South Africa, and the current minimal rate of crawl on the pula.
The biggest medium-term threat is that the Bank of Botswana increases the rate of crawl on the pula,” read the RMB market commentary.
Due to deliberate exchange rate policy by the Bank of Botswana, the Pula has appreciated against the rand by 9.8 percent since February 2013, deflating imported inflation from South Africa where Botswana gets the bulk of its imports.