Tuesday, October 26, 2021

Consumer inflation accelerates to 3.6% as fuel prices bite

By Bonnie Modiakgotla

The inflation rate is on the upswing, hitting its highest rate in four years, and the biggest monthly change since last year May. The increase in inflation rate is accelerated by the fuel price costs which were tweaked three times this year, with another upward adjustment expected in December.

Statistics Botswana released its monthly Consumer Price Index (CPI) on Thursday showing that inflation in October was 3.6 percent, an increase from September’s 2.9 percent. The components of CPI, group indices, were generally moving at steady pace between the two months under review.

As expected, the largest price increase was recorded in the Transport Group Index which surged 3.5 percent on the account of price increases in the operation of personal transport and purchase of vehicles. The increase in operation of personal transport section index was due to the rise in retail pump prices of petrol and diesel by P0.65 and P0.73 per litre respectively, which effected on 15th October 2018.

The Transport Group Index with a weight of 20.65 percent is the largest component of the CPI thus its influence in determining the direction of inflation rate.

Other increases across group indices include 0.1 percent increase in the Health group index, and for the Alcohol and Tobacco index. Other groups remained flat, not recording any increases except for the Miscellaneous Goods and Services, and Recreational and Culture group indices which eased 0.5 percent and 0.4 percent respectively.

The country seems to be moving from a low inflation environment that has been persistent in the last three years due to weak domestic demand. The current uptick in inflation can be traced to the cost-push inflation, which is influenced by the supply side. While inflation rate did not react much to the first fuel hike early this year, it buckled under the second increase which was effected in October.

Meanwhile inflation is expected to continue its newly found upward momentum following Wednesday’s decision by the ministry of Mineral Resources, Green Technology and Energy Security and Botswana Energy Regulatory Authority (BERA) to increase fuel prices again, exactly 30 days from the last hike.

In the latest price increase, petrol price will go up by 0.33t per litre, while diesel increases by 0.36t per litre and paraffin will cost 0.31t more. The price adjustments are effective from Thursday 15th November.

“The increase in retail pump prices is necessitated by the growing numbers of under recoveries since September 2017. The actual cost of importing petroleum products into Botswana has been higher than the regulated price. Hence there is a need to align the local retail pump prices with international trends,” the ministry said in a statement.

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