Saturday, December 4, 2021

Botswana Inflation hit decade high in July

Botswana’s inflation rate has hit the highest level in more than a decade as consumer prices continue to soar, mostly driven by government actions as it fights back against the repercussions of the COVID-19 pandemic.

Botswana’s annual inflation rate soared to 8.9 percent in July, reaching its highest level since 2009. The latest rise in prices was on the back of cost increases in the transport following numerous fuel price adjustments.

Consumer prices have been on the rise since last year June and breached the Bank of Botswana’s medium objective range of 3 – 6 percent in May 2021, as the inflation rate ticked to 6.2 percent. In the first six months of 2021, prices rose the most for the transport sector by 13.9 percent, followed by the alcoholic beverages and tobacco segment, which has been facing numerous challenges such as ban on sales and change in legislation , but still managed to see prices jumping by 7.2 percent.

Much of the growth in inflation rate can be traced to government actions as it increased administered prices. The value added tax (VAT) was hiked from 12 percent to 14 percent; an additional P1 per litre fuel levy; upward adjustment in electricity tariffs by 3 percent in 2021 and 4 percent in 2022; the increase in Botswana Housing Corporation (BHC) rentals; the introduction of sugar tax; the announced increase in water tariffs; and most recently the introduction of the plastic levy.

However, the biggest inflationary pressures came through state owned Botswana Energy Regulatory Authority (BERA), which has been increasing fuel costs since last year, with the latest increase announced in July 10. The average inflation rate in the first quarter of 2021 reached 2.6 percent, and following state actions, the second quarter inflation rate nearly tripled to 6.7 percent

The rise in prices this year has put an end to a low inflationary environment that has been running for more than a decade. From 2008’s inflation rate of 12.62 percent, prices have been following steadily over the years, with 2012’s rate of 7.5 percent decelerating to 5.9 percent in 2013, and further plunged to 4.4 percent the next year. By 2015, the inflation rate was hovering around 3, and went below the Bank of Botswana’s threshold in 2016 as it clocked 2.8 percent. slightly to 3.3 Prices appeared to increase slightly in 2017, rising 3.3 percent in 2017 before retreating to 3.2 percent in 2018.

Consumer prices continued to fall, registering average growth rate of 2.8 percent in 2019 before falling to the lowest levels in more than 20 years as the average annual inflation rate recorded record low of 1.9 percent in 2020.

Despite increases in prices, the central bank expects consumer prices to revert within the 3 – 6 percent objective range in the first quarter of 2022.

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