Botswana motorists and industry might receive the shock of their lives with fuel price increases if what the market believes will be a continued spike in crude oil prices. Already, the impact of oil prices is being felt home within the past two months, registering increases in inflation rate coupled by the other factors like April adjustment in Value Added Tax (VAT).
“We expect the May inflation rate to move further upwards in response to the increase in electricity tariffs by an average of 30 percent which was effected on 1 May,” said Gary Guma, an analyst with Motswedi Securities.
“Fuel prices are expected to be adjusted again in line with the rise in fuel prices on the international market and this will further exert more inflationary pressures during the second quarter of this year,” he said. Statistics Botswana on Friday indicated that inflation, as measured by the Consumer Price Index (CPI, rose to 7.1 percent year-on-year in April from 6.0 percent year-on-year in March, the highest increase so far this year.
The orgnaisation said this was much to expectations, following the 2 percent increase in VAT, which was effected on 1 April.
The rise in the April rate was on the back of increases in almost all the basket items except the clothing & footwear, furnishing house hold equipment & routine maintenance and education groups.
Dr Keith Jefferis, an economist with Econsult, said he expected to see inflation jump to about 8 percent although the Bank of Botswana might be lenient not to up the interest rates.
“Inflation will jump to 8 percent in May because of Value Added Tax (VAT) and higher electricity tariffs,” said Jefferis.
VAT was adjusted by 2 percent from 10 percent to 12 percent, although it is lower, compared to 14 percent in South Africa.
“We will see it (inflation) sticking around 7-8 percent for the rest of the year. Hopefully, as we go into 2011, it will go down,” said the former Bank of Botswana deputy governor.
The risk to inflation will also be reflected by the uncertainties in the oil prices, with international prices gripping up.
“I will not be surprised if domestic fuel prices go up,” he added.
However, he hoped that in the next two months, the Bank of Botswana will understand the difficulties, coupled by the fact that the Central Bank now focuses on inflation in the medium term.
Botswana’s inflation rate fell last month to 6 percent, which was the lowest for the first time in three months.
Decreases were, however, observed in clothing & footwear down to 8.2 percent year-on-year in April from 8.5 percent year-on-year in March, furnishing house hold equipment fell to 9.4 percent year-on-year from 10.8 percent year-on-year the previous month with education group stable at 5.8 percent.
The Bank of Botswana, however, expects inflation to fall within its 3 percent to 6 percent objective range early in 2011 due to slower economic growth and reduced demand pressures as a result of declining household incomes, due to the public sector wage freeze and the slower growth of government spending.