Inflation Eases Slightly, Projected To Increase

Brian Benza
Staff Writer | Monday April 19, 2010 00:00

 

In a statement, the CSO said that four group indices recorded changes of at least 1.0 percent between February and March - Clothing & Footwear (1.4 percent), Furnishing, Household Equipment and Maintenance (1.4 percent), Restaurants & Hotels (1.1percent) and Housing, Water, Electricity, Gas & Other Fuels (1.0 percent).

 However, inflation will be expected to register a marked increase next month mainly on the back of the 2 percent hike in Value Added Tax (VAT) which came into effect at the beginning of this month.

As a result of the increase in Value Added Tax (VAT), the Bank of Botswana says they do not expect inflation to fall back within its 3 to 6 percent objective range until the first quarter of 2011.

In the 2010 Monetary policy statement, the Bank of Botswana had also forecast VAT increase to add 1.7 percentage points to inflation from April but now analysts believe the figure could be much higher as retailers have since the beginning of the month increased their prices by more than 2 percent. On the other hand, the 30 percent electricity tariffs hike announced by the Minister of Minerals, Energy and Water Resources, Ponatshego Kedikilwe last Friday will significantly add to inflationary pressures from May going forward.

 The minister said that the average 30 percent would go a long way in trying to sustain the operations of BPC which is virtually on its knees after posting operating losses for four consecutive years. Economist Dr Keith Jefferis says he expected inflation to be between 7.5 percent and 8 percent in April. 'Although they could have been cases of some retailers trying to piggyback of the VAT hike, I still expect inflation to rise by between 1.5 percent and 8 percent in April.

'However, it could also be a case of genuine price increases as most companies' financial year starts in April or even promotions coming to an end. But if it is true that some retailers are doing this, I believe they, especially those that sell to the low-income earners, are actually shooting themselves in the foot. 40 percent of the labour market, which are government employees have not had a pay rise in two years and these consumers, despite the current low levels of inflation, will increasingly reduce the amount of goods they buy especially the luxuries,' he said.

 Gary Juma of Motswedi Securities says he expects inflation to settle at around 7.8 percent in April. The bank left its main lending rate steady at 10 percent in February, saying longer-term inflation was seen under control while economic growth remained weak.

 For the month of March, the CSO reported that the cities and towns' inflation rate went down by 0.1 of a percentage point from 6.6 percent in February to 6.5 percent in March. The urban villages' inflation rate was 5.2 percent, down from the February rate of 5.8 percent by 0.6 of a percentage point.

The rural villages' inflation rate registered an increase of 0.5 of a percentage point, from 5.4 percent in February to 5.9 percent in March. The March national Consumer Price Index was 132.6, up by 0.7 percent on the February index of 131.7.  The rural villages' index went up from 136.4 in February to 138.3 in March, recording an increase of 1.3 percent.

The cities and towns' index moved from 130.1 to 131.0 between February and March, registering an increase of 0.7 percent. The urban villages' index went up by 0.4 percent, from 131.2 to 131.8 between the two months.