October inflation edges up marginally

Brian Benza
Staff Writer | Wednesday November 17, 2010 00:00

According to figures released by the Central Statistics Office, only two   group indices, namely Restaurants & Hotels (1.1 percent) and Clothing & Footwear (1.0 percent), registered significant increases.

'The Restaurants & Hotels group index recorded an increase of 1.1 percent from 168.8 in September to 170.6 in October. There was a general price increase as indicated by increases in the constituent section indices of'Restaurants, Cafes & the Like (1.1 percent) and Accommodation Services (0.9 percent).

The Clothing & Footwear group index was 126.3 in October, up by 1.0 percent on the September level of 125.0.'The increase was a result of the constituent section indices of Clothing (2.2 percent) and Footwear (0.3 percent),' read a statement from the CSO.

Inflation has hovered in the range of 6 percent to 8 percent in recent months without any clear direction. A gradual decline from 7.8 percent in May to 6.7 percent in August was reversed with an increase to 7.0 percent in September, and it is anticipated that inflation will continue to fluctuate in the same 6 percent to 8 percent range through to March 2011.

Beyond that time, however, there are good prospects of a further decline in inflation that will take the rate back within the Bank of Botswana's 3 percent to 6 percent inflation objective range, sometime in the second quarter of 2011.

'Our view is that, barring any unforeseen oil price shocks from the international market, or further changes in domestic taxes such as VAT or the alcohol levy, inflation should then remain within the BoB's range for the foreseeable future,' says Economist Dr Keith Jefferis in a third quarter economic review report.

After cutting rates by a total of 5.5 percent in 2008 and 2009, the BoB has kept rates on hold even with the pick-up in inflation in recent months, reflecting the expectation that inflation will be contained in the medium  term.

The adoption of the neutral monetary policy stance has seen interest rates unmoved since the beginning of the year, and with no major inflation shocks expected in the near future, no change in the bank rate is expected from MPC's last sitting of the year in December.

'Our expectation is that the next move in interest rates will be downwards, although probably not until the headline rate falls below 6 percent sometime in 2011,' he says.

The central bank says that the positive inflation outlook is influenced by the low pressures in South Africa and the dissipation of the impact of the increase in VAT and administered prices. The likelihood that government spending will be growing slowly, if at all, due to the need to balance the budget, means that demand pressures will also be weak, hence there are good prospects that inflation will remain relatively low by historical standards in coming years.

IMF forecasts, for instance, project average annual inflation remaining between 5 percent and 6 percent from 2012 through to 2015.