Average price increases in Botswana reached their highest level in more than a decade, with the high costs of living largely driven by government actions, which has run out of money, and has resorted to increasing administered prices.
Statistics Botswana’s consumer price data released on Thursday shows that inflation continued its upward swing, soaring to 8.2 percent in June, the fastest pace this year, up from the May rate of 6.2 percent.
The latest increase in goods and services was on the back of an increase in prices of transport, housing, water, electricity, gas and other fuels, food and non-alcoholic beverages.
Consumer prices have been on the rise since the beginning of 2021, increasing each month and finally breached the Bank of Botswana’s medium objective range of 3 – 6 percent in May as the inflation rate soared to 6.2 percent.
In the past 6 months, prices in the transport sector have shot up by 11.6 percent, followed by prices of alcoholic beverages and tobacco which surged by 6.8 percent while housing, water, electricity, gas and other fuels prices jumped by 6.7 percent. Still in the first half of the year, other notable price increases were in the food and non-alcoholic beverages which grew by 5.8 percent, and the 5.9 percent increase in miscellaneous goods and services, advancing by 5.9 percent, with the most increase in costs coming from the financial services providers who have hiked prices by an average of 10.8 percent since January.
Much of the growth in inflation rate can be traced to government actions as it increased administered prices such as fuel, taxes and levies, resulting in domestic prices jumping from an average of 4.2 percent in the first quarter of 2020 to an average of 4.8 percent in the first quarter of 2021. Prices expected to continue rising in July after state agency Botswana Energy Regulatory Authority (BERA) increased fuel prices again.
The recent surge in inflation this year has put an end to the low inflationary environment that has been running for ten years. The easing of the inflation started with 2012’s average rate of 7.5 percent dropping to 5.9 percent in 2013, and continued to 4.4 percent the following year, and by 2015 it was at 3 percent. The inflation rate’s descent went below Bank of Botswana’s threshold in 2016, with the rate recorded at 2.8 percent, before increasing slightly to 3.3 percent in 2017 and retreated to 3.2 percent in 2018.
By 2019, the inflation rate went below the objective range again, registering 2.8 percent, and plunged to the lowest levels in more than two decades as the average annual inflation rate hit new lows of 1.9 percent in 2020.
Earlier this year, the central bank projected that the inflation rate will increase in the near term, and likely to rise above the 6 percent tolerated level in the second quarter of 2021, as they took in account government’s decision to increase value added tax (VAT) 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.
While prices are on the rise, Bank of Botswana says it will stick to the accommodative monetary policy, maintaining the bank rate at 3.75 percent at the previous monetary policy meeting (MPC) in June. The bank rate was last adjusted in October.
The bank governor central Moses Pelaelo said prices will continue to rise in the short term, with upside risks emanating from the potential increase in international commodity prices beyond current forecasts, persistence of supply constraints due to possible maintenance of travel restrictions and lockdowns, and domestically based risk factors relating to second-round effects of the recent increases in administered prices that could lead to generalised higher prices.
“However, these risks are moderated by the possibility of weak domestic and global economic activity, with a likely further dampening due to periodic lockdowns and other forms of restrictions in response to emergence of new COVID-19 variants,” the governor said.
Inflation is expected to revert to within the 3 – 6 percent objective range in the first quarter of 2022.