By Bonnie Modiakgotla
Inflation dropped in December following government intervention not to increase fuel prices.
Latest figures from Statistics Botswana show that inflation rate for December was 3.5 percent, shedding 0.3 percent from the November rate of 3.8 percent which had spiked following an increase in fuel prices.
Inflation had been on the upward swing in the last two months after fuel prices were hiked twice in a space of a month.
The 3.8 percent rate recorded in November was hot on the heels of another 3.6 percent inflation rate in October, with the increase also due to a fuel hike effected the previous month.
At the current rate of 3.5 percent, the figure is within the Bank of Botswana’s objective range of 3 ÔÇô 6 percent. Furthermore, Botswana has become the fourth country with the lowest rate in the 16 member strong SADC states. Mauritius has the lowest inflation at 1.8 percent, followed by Tanzania (3.30 percent) and Seychelles (3.38 percent).
According to the data from Statistics Botswana, components of the Consumer Price Index – which measures inflation ÔÇô were generally moving at a steady pace between November and December 2018, recording changes of less than 1 percent.
The biggest mover was the Restaurants and Hotels group index, which increased 0.3 percent. A 0.2 percent increase was registered in the Transport group index, propped by a rise in the purchase of vehicles. In an opposite move, the Alcoholic Beverages and Tobacco group index went down 0.2 percent on the back of general decrease in the section indices.
Prior to the December’s upward inflation rate, Botswana’s economy appeared moving from a low inflation environment that has been persistent in the last three years due to weak domestic demand. The uptick in inflation from October to November could 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 in May 2018, it later buckled under the second increases in October and November.
The inflation rate was expected to continue rising with reports that another fuel hike was expected in December. However, the government decided to put brakes on market dynamics, shifting its foot to accelerate on political expediency by acting against an impeding fuel hike. Late last year, parliament had to approve supplementary budget, of which some of the money went to the ministry of Mineral Resources, Green Technology and Energy Security, which has requested the money to cushion Batswana against another fuel hike.
Analysts say Botswana could be making a return to its low inflation environment attributed to demand-pull inflation, in which the levels of inflation rate are determined by aggregate demand. In this scenario, if there is greater demand for certain goods but limited supply (too much money chasing fewer goods) prices will go up. Conversely, if there is lack of demand for goods and services, the prices will go down ÔÇô which might be the case in the country besieged by waning.
Bank of Botswana has repeatedly said that the low inflation rate in Botswana was due to diminishing demand for goods and services. This is not unusual in country where unemployment roll that continues to grow, depressed disposable incomes (money left for spending and saving after taxes and pension has been deducted) as well as low salaries offered to new recruits. In short the economic activity at the household level is not stimulating demand.