Local businesses’ expectation of high inflation have tapered, lowering their forecast to 9.6 percent annual inflation for this year, according to the Business Expectation Survey.
According to the Bank of Botswana survey which is released quarterly, firms expect cost pressures to continue rising but not at the 10.5 percent rate as they had estimated in the previous survey during 2022 third quarter. The downward revision of expectations is in line with the Bank’s revision of the inflation outlook in December 2022.
The annual inflation rate was 12.5 percent in 2022, almost twice the annual inflation rate in 2021 which averaged 6.7 percent. The increase in the two years has been steep compared to the annual inflation rate of 1.9 percent in 2020.
The rise in prices was largely attributed to broad-based increases in prices of most categories of goods and services, particularly the increases in domestic fuel prices. The increase in prices cooled off between September and November is also a result of fuel prices being decreased.
The central bank’s monetary policy (MPC) in its last sitting in December said inflation will continue to trend downwards and fall within the objective range in the third quarter of 2024. The projected decrease in inflation into the medium term is due to the dissipating impact of the earlier increases in administered prices, subdued domestic demand, current monetary policy posture, expected decrease in global inflation and international commodity prices, the MPC said in the monetary policy report released in December.
“There is a significant risk that inflation could remain elevated owing to the potential increase in international commodity prices beyond current forecasts; persistence of supply and logistical constraints to production; the adverse economic and price effects of the ongoing Russia-Ukraine war; and the uncertain COVID-19 profile,” the MPC said.
On the domestic front, the risks of higher inflation than currently projected relate to possible annual adjustments of administered prices not included in the forecast; short-term consequences of import restrictions; second-round effects of the increase in administered prices; upward pressure on wages across the economy emanating 2 from the increase in public service salaries; and entrenched expectations for higher inflation, which could lead to higher general price adjustments, the report warned.