Inflation prints at 26-month high on fuel price hike
Staff Writer | Wednesday April 19, 2017 15:54
Figures released by Statistics Botswana show the annual inflation rate in March 2017 printed at 3.5%, an increase of 0.1 of a percentage point on the February 2017 rate of 3.4%.
Fuel, which falls under the transport index, carries the highest weight in Statistics Botswana’s Consumer Price Index (CPI) basket. “The transport index group registered an increase of 1.0% from 99.8 in February 2017 to 100.9 in March 2017. This was attributed to an increase in the constituent section index of Operation of Personal Transport, which went up by 2.1%.
“The increase in Operation of Personal Transport section index was due to the rise in retail pump prices for petrol and diesel by P0.20 and P0.25 per litre respectively, which effected on the 4th March 2017,” said Statistics Botswana.
Annual inflation was last at this level or higher when it reached 3.6% in January 2015.
The rise of the CPI is in line with analysts’ predictions that inflation will quicken in the first half of the year largely due to adjustments to administered prices.
Following adjustments to power and water tariffs at the beginning of this month, the April annual inflation rate is expected to further quicken.
Water Utilities Corporation (WUC) has effected an average 15% tariff adjustment from April 2016 while the power corporation has also upped tariffs by an average 10.5%.
Delivering his inaugural Monetary Policy Statement (MPS) in February, central bank governor, Moses Pelaelo said barring any unexpected change in external factors, the administered prices reviews were the single largest upside risk to inflation in the short term.
Having touched at all-time low of 2.6% in August 2016, Botswana has been enjoying a historic benign inflation environment, a development that has afforded monetary authorities room to slash interest rates.
“Our inflation trajectory now points to an acceleration to around 4.0% year on year by mid-2017 from 3.0% in Dec.
This is lower than our previous forecast of a 4.5% print by mid-year and is more in line with the Bank of Botswana’s relatively benign inflation outlook.
“With regard to policy, we continue to see the central bank on hold throughout 2017. 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,” said analysts at Standard Bank in their 2017 Africa Revealed report.
Interest rates are sitting at equally record low levels with the bank rate last reduced to 5.5% in August 2016.
The low interest rates environment has however not had a significant direct impact on credit growth with households and businesses’ lending capacity constrained by stagnant real wages and sluggish economic growth.
Despite benign interest rates, overall credit growth slowed to 6.2% in December 2016 from 7.1% a year earlier.
The slowdown in annual credit expansion was mostly associated with the decrease in growth in lending to households from 12.8% in December 2015 to 7.6% in December last year, largely reflecting the effect of restrained growth in personal incomes.