Rebased inflation data outdated � Analysts
Staff Writer | Tuesday January 24, 2017 16:10
Botswana Consumer Price Index (CPI) was rebased in October last year, with Statistics Botswana changing its CPI base year from 2006 to 2016 while also modifying calculation of consumer inflation to factor in changes in consumption patterns, product availability and basket weights.
However, market analysts at Investec Asset Management say the survey used to update consumption patterns is itself outdated and will therefore not reflect the current trends.
“The decision to rebase and rebalance the CPI was welcome development in our view following a number of concerns from the market on data accuracy,” said Investment Analyst, Tshephang Loeto.
“We however highlight that the survey used to try and capture the current consumption patterns is already six years old – this might not necessarily be a good indicator of the current consumption patterns as they might have shifted.” The rebasing brought with it some changes to the inflation basket weights as well as more depth to the range of goods included in the basket. These were derived from the 2009/10 consumption pattern survey.
Since rebasing the CPI to September 2016 last year, which most notably saw an increase in the transport category weighting, annual headline consumer inflation has been on the rise following an initial drop in October. At three percent, Loeto says the December print was in line with their forecasts, slightly higher than 2.9% registered in November.
Despite the uptick, inflation has only just returned to the lower end of the target band as weak domestic demand has helped to keep inflation lower.
At the same time, government is aiming for some fiscal consolidation and thus keeping a tight rein on the fiscus, which has in turn limited real wage growth – even during periods of low inflation. Given the higher weight to the transport category in the new CPI weights, Loeto says they expect inflation to continue on an upward trend, albeit at a slow pace.
Global oil prices have now become an upside risk following an agreement that was reached by Organisation of the Petroleum Exporting Countries members to limit production in order to deplete existing inventory.
“In the short term, we do not expect a significant rally in oil prices as the market is still oversupplied, however given that demand has not disappointed, this could push up oil prices in a few months.
To Botswana consumers, this should not be very worrying news given that the National Petroleum Fund should have been building reserves when oil prices were low. There are also expectations of lower food prices, as the regional drought recedes together with the subdued demand, should help keep inflation in check,” Loeto said.
Against this backdrop, the analyst does not expect the Monetary Policy Committee (MPC) to review rates as inflation returns into the three to six percent target band and should remain comfortably within this range for the rest of the year in the absence of any shocks.