Inflation is expected to retreat this month on the back of the recent significant drop in fuel prices, even as food costs, particularly those of meat, stubbornly press higher.
The Botswana Energy Regulatory Authority on Friday dropped fuel and paraffin prices by an average P1.58, the largest decrease in several years and the second this year since the average 14.3 thebe decrease in April.
With no reviews of fuel prices throughout 2019, the latest reduction means a significant reduction in the Transport sector of the Consumer Price Index (CPI), the measure of inflation. Transport carries the heaviest weighting in the CPI at 23.43 meaning even marginal changes in the sector influence overall inflation.
In May, inflation fell to 2.4 percent from 2.5 percent in April due to a 0.6% drop in the Transport sub-index of the CPI.
The Food and Non-Alcoholic sub-index rose by 0.6% during May, but was unable to stop inflation from dropping due to that group’s lower weighting in the inflation calculation.
“The Transport group registered a drop of 0.6 percent attributed to a decrease in the constituent section index of Operation of Personal Transport,” Statistics Botswana said in commentary accompanying the inflation figures.
“The decrease in Operation of Personal Transport section index was due to the drop in retail pump prices for petrol and diesel by P0.13 and P0.10 per litre respectively, which effected on 21st April 2020.”
Local inflation is expected to trend below the Bank of Botswana medium target
“Inflation is forecast to remain below the lower bound of the Bank’s three to six percent objective range in the short term, mainly due to the disinflationary pressures anticipated from the effects of the COVID-19 pandemic on both the domestic and global prospective economic developments,” the Bank said in a recent research note.
Meanwhile, despite the low inflation environment, food prices are swimming counter to trends, with meat prices having increased by about 10% in the 12 months to May 2020.
Average fruit prices rose by 6.2 percent in the 12 months to May, while breads and cereals rose by 3.2 percent over the same period. Statistics Botswana details indicate that out of the 11 items making up the food and non-alcoholic sub-index of the CPI, eight items rose in terms of prices over that period, with only three declining.
Only the average prices of oils and fats, vegetables and sugar, jam, honey, chocolate and confectionery fell during the period.
On the whole, average food and non-alcoholic beverage prices rose by 3.2 percent in the 12 months to May 2020.