Inflation holds steady at 4.3%
Isaac Pinielo | Wednesday December 17, 2014 19:49
Since last year, inflation has maintained within the Bank of Botswana’s three to six percent objective rate. According to Statistics Botswana, contributing to the annualised inflation rate, were eight out of the twelve group indices, notably alcoholic, beverages, tobacco and narcotics, which experienced positive increases. The statistics agency also noted that increases also outweighed the decreases recorded by major group indices of transport and food and non-alcoholic beverages in the period under review. Group indices moved at slow pace between October and November 2014, recording changes of less than 0.5 percent.
Nonetheless, SB said there were group indices, which increased by 0.5 percent or more, namely clothing and footwear (0.7 percent), transport (0.5 percent) and miscellaneous goods and services (0.5 percent). The clothing and footwear index group upped to 165.0 in November 2014 from 163.9 in October. The increase was attributed to the general increase in the section indices, notably clothing at 0.9 percent.
The transport index group registered an increase of 0.5 percent, from 174.3 in October to 175.2 in November. This attributed to a rise in the constituent section index of purchase of vehicles, which went up by 1.4 percent, according to SB.
Since last year, inflation has maintained within the BoB’s 3-6 percent objective, although analysts believe that pressure from imported inflation might see the CPI trending up in the last few months of the year. “In the mid-term review of the 2014 monetary policy statement, Bank of Botswana indicated that it will maintain its neutral policy stance in order to provide support for the domestic economy as the expansionary impact of fiscal policy is limited by restrained government spending. We maintain our view that inflation will trend upwards towards the end of the year, but will remain within the central bank’s target inflation band of between 3 percent - 6 percent, with the likely sources of upward pressure coming from imported inflation, possible increases in administered prices, as well as government levies,” stated stockbrokers, African Alliance.
In a market commentary, researchers at Rand Merchant Bank previously said that while higher inflation has come from domestic sectors, more inflation would come through from imported goods in the coming months
“Domestic demand is proving weaker than expected so inflationary pressure is being offset. Furthermore, risks to this forecast are now to the upside.
The main danger is we see further rand weakness, which would add to imported inflation. “Administered and food prices are also at risk and we expect the central bank to hike the bank rate by 50 basis point by the end of the year. We maintain our forecast of 4.5 percent inflation for 2014,” said the analysts.
Any upward adjustments to the bank rate will be felt most by borrowers who have been enjoying favourable interest rates on loans since the 200 basis point bank rate cut last year. A decision on any review of the bank rate is expected at the next Monetary Policy Committee (MPC) meeting to be held this month.
At the last MPC meeting, the central bank said Botswana’s output growth was estimated at 5.9 percent in the 12 months period to March 2014, reflecting the 14.2 percent and 4.6 percent increase in mining and non-mining output, respectively. It is anticipated that non-mining economic activity will be below potential in the medium term.
“The impact of domestic demand on economic activity is projected to be modest, largely indicating trends in government expenditure and personal incomes.
“Weak domestic demand and the projected benign external price developments result in a positive inflation outlook for the medium term,” stated the central bank.
However, the bank noted that this outlook could be adversely affected by unanticipated increase in administered prices and government levies, as well as international oil prices that are higher than currently forecast.