Inflation quickens to 13-month high

Staff Writer | Thursday February 16, 2017 16:04

This is the highest inflation rate in 13 months as the Consumer Price Index (CPI) was last above three percent in December 2015.

Figures released by Statistics Botswana show that the inflation rates for regions between December 2016 and January 2017 indicated that Cities & Towns went up to 3.1% from 2.8%, urban villages’ decreased to 2.8% from 3.0%, and rural villages’ increased to 3.6% from 3.5%.

 “Three group indices recorded changes of at least 1.0% between December 2016 and January 2017, Education (4.0%), Food & Non-Alcoholic Beverages (1.0%) and Alcoholic Beverages, Tobacco & Narcotics (1.0%),” said Statistics Botswana.

Analysts believe that the inflation trajectory now points to an acceleration to around 4.0% the by mid-2017.

 As a result of the forecast, which is still benign, analysts continue to see the central bank holding interest rates steady throughout this year.

“However, as economic growth gains further traction in 2018, we believe that the MPC may look to recalibrate policy in line with higher nominal GDP growth.

We thus stick with our view of 100 basis points rate hikes in 2018.

Following the introduction of a reweighted and rebased CPI from Statistics Botswana last October, the weight of Botswana’s food and non-alcoholic beverages index is now just 16.5% of the basket – significantly down from an already low 21.84%, and similar to South Africa’s 15.4% weight.

Similarly, the weight of alcohol and tobacco also came in lower, at 7.83%, from 9.29% previously. With this down-weighting, it is only reasonable to expect that pass-through from food, alcohol and tobacco prices to headline inflation may be lower than before,” said analysts at Standard bank in a market report.

Botswana food prices tend to move in line with South African food prices – sometimes with a lag.

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, analysts say they expect inflation to continue on an upward trend, albeit at a slow pace.