Despite the inflation numbers closing the year within the target objective set by Bank of Botswana, it could be a different story in 2015.
The prices have been steady owing to lower commodity prices that came with Consumer Price Index (CPI) measured inflation steadying at 4.3 percent, which was the same figure recorded in October.
Investec, the local asset management company said it expects recent fuel price reduction to filter through to CPI in the coming months, putting more downward pressure on the transport category.
However, analyst at the company, Tshephang Loeto, said alcohol tax could spoil the party as government could adjust the levy upwards.
“In our view, the main threat to inflation is an increase in administered prices, as well as a probable increase in the alcohol levy, expected to be announced in December,” Loeto said.
“However, we believe subdued commodity prices will continue to have a positive impact on CPI for the foreseeable future,” he added.
Government introduced the alcohol levy in November 2008 that resulted in a temporary rise in inflation. The levy that was set at 30 percent at that time, inflation went up by 1.9 percentage points to 15.0 percent before dropping again to 13.7 percent the following month.
The introduction of the levy resulted in alcohol producers such as Sechaba Brewery Holdings Limited increasing prices of their products thus impacting negatively on the purchasing powers of consumers.
“We are on track to end the year with inflation figures very similar to those of 12 months ago. We believe the Bank of Botswana will keep the interest rate unchanged in the medium term,” Loeto said.
Indeed the Bank Rate has been maintained at 7.5 percent although comparatively the cost of borrowing is still high and inhibiting companies to borrow and expand production.
Linah Mohohlo’s of BoB has set medium term inflation objective range of 3 – 6 percent.