Thursday, April 25, 2024

CPI to close the year higher despite slowing in September

Although national year-on-year inflation slowed last month, the numbers are still expected to end the year higher than the target objective set by Bank of Botswana (BoB).

Data released by Statistics Botswana showed last week that in September 2011, the national year-on-year inflation rate stood at 8.6 percent, down by 0.1 of a percentage point from 8.7 percent in August 2011.

This brought an outside chance that it will fall within the BoB set target in not so distant future.

However, analysts said inflationary pressures have remained high, although the last month CPI figures were pushed down by base effects and the stronger Pula versus the Rand.

“We continue to expect inflation to end the year higher, with our forecast reading seeing CPI hitting 8.9 percent for December 2011,” Carol-Jean Harward, an analyst at Investec said.

“We maintain our view based on the fact that commodity prices remain robust and that the short-term price pressure risks remain to the upside; most notably those posed by higher international food and fuel prices,” she said.

Bank of Botswana has set an inflation objective range of 3- 6 percent, but there has been threats to the Central Bank meeting the target.

The Bank has also admitted that the objective will be difficult to attain.

“However, short-term price developments imply that inflation will continue to be above the 3 ÔÇô 6 percent objective range, due to the impact of the increase in fuel prices and public transport fares, as well as a revised higher forecast for inflation in South Africa,” Bank of Botswana said.

The Bank agrees that inflation is forecast to converge to the 3 ÔÇô 6 percent medium term objective range in the second half of 2012.

Earlier in the week BoB MPC committee decided to leave the Bank Rate unchanged basing the decision on the inflation outlook.

“The current state of the economy and the assumptions on both the domestic and external economic outlook, as well as the inflation forecast, suggest that maintaining the prevailing level of interest rates is consistent with the achievement of the Bank’s 3 ÔÇô 6 percent inflation objective in the medium term,” the Bank said.

“Accordingly, the Monetary Policy Committee decided to maintain the Bank Rate at 9.5 percent.”

Investec believes the MPC will maintain rates at 9.5 percent for the remainder of the year arguing the outlook, however, depends utterly on the global recovery.

“If the global economy slows further and for an extended period and commodity prices drop significantly, not only would the growth outlook for Botswana deteriorate, but inflation would probably be lower than we expect and there will be increased pressure on the MPC to keep rates low, with a higher possibility of a rate cut,” Harward said.

Despite the slowing September CPI figures, there were significant rises in Furnishing, Household Equipment and Routine Maintenance index, which went up by 1.4 percent over the month, and the Housing, Water and Electricity, Gas and other fuels index, which rose by 0.8 percent month on month, with the steep increase in the latter as a result of the fuel price hikes in August 2011.

The heavily weighted Food and Transport sub-indices rose 0.5 percent and 0.1 percent month on month, respectively.

The marginal increase in the month on month number for the Food index is partly a reflection of the stronger Pula against the Rand, as our imports (about 65 percent of our total imports are from South Africa) become relatively cheaper.


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