Inflation quickens marginally
Staff Writer | Thursday July 17, 2014 12:08
“Two group indices recorded changes of at least 1.0 percent between May and June, Health (2.2 percent), Furnishing, Household Equipment& Routine Maintenance (1.0 percent).
“The Health index group was pushed by a 3.5 percent Hospital Services. “On the other hand, the furnishing, household equipment& routine maintenance index group upped from 174.4 to 176.1, on the back of an increase in domestic workers monthly wages, which rose by 1.8 percent between first and second quarter of 2014, based on quarterly survey,” said SB.
Despite the marginal rise in annual inflation for the month, annual inflation in June 2014 was however lower than the 5.8 percent recorded during the same month in 2013.
The downward movement of annual inflation rate between June 2013 and June 2014 was attributed to the decline on prices of commodities especially the main components of transport and food & non-alcoholic beverages, which dropped by 6.9 and 1.8 percentage points respectively.
Inflation is expected to remain within the Bank of Botswana 3-6 percent objective in the medium term.
At its June sitting, the central bank’s monetary policy committee decided to maintain the benchmark bank rate at 7.5 percent citing a favourable inflation outlook.
“Weak domestic demand and the projected benign external price developments contribute to the positive inflation outlook in the medium term. However, this outlook could be adversely affected by any unanticipated large increase in administered prices and government levies, as well as higher than currently forecast international oil prices,” said the central bank in a statement.
While prospects of any higher inflation will support the case for further interest rate increases, slow growth in the economy will prevent these from being significant and economic experts expect the MPC to hike the interest rate by 50 basis points only towards the end of the year.
It is expected that non-mining economic activity will remain below the potential level in the medium term and therefore the influence of demand on economic activity is projected to be modest, largely reflecting trends in government expenditure and personal incomes.
According to analysts at RMB market research, more inflation will come through from imported goods in the coming months.
“Admittedly, domestic demand is proving weaker than expected so this is being offset. Risks to this forecast are now to the upside. The main danger is if we see further rand weakness, which would add to imported inflation. We expect the central bank to hike 50 basis points by the end of the year,” said the analysts in a previous market report.