Tuesday, July 16, 2024

Education index pushes January CPI up

The national year-on-year inflation went up in January with education surprising the market on the upside with food remaining stable during the period.

Central Statistics Office (CSO) said on its monthly Consumer Price Index (CPI) update that the inflation number was 7.9 percent, which was a 0.5 percent increase from 7.4 percent figure recorded in December.

The data, which comes a week after the budget speech with no salary adjustment, showed that stagflationÔÇöinflation influenced by rise in prices rather than salary increase – induced strong demand ÔÇô in the two group indices recorded changes of more than 1.0 percent between December 2010 and January 2011 were the education (10.6 percent) and transport (1.1 percent).

The education group index recorded an increase of 10.6 percent ÔÇô from 120.5 in December to 133.2 in January. The constituent section indices of pre-primary & primary education and secondary & tertiary education recorded increases of 17.2 and 6.9 percent respectively.

The pre-primary & primary education section index was 154.5 in January, up from 131.7 in December. The secondary & tertiary education section index moved from 115.0 in December to 122.8 in January.

“The rise was mainly attributed to increases in the private secondary, pre-primary and primary education school fees and development fees for public primary schools,” said CSO on its e-mailed update.

The transport group index registered an increase of 1.1 percent, from 132.2 to 133.7 between the two periods.

CSO blamed the increase in the constituent section indices of purchase of vehicles, transport services and operation & personal transport, which rose by 2.6, 0.5 and 0.3 percent, respectively.

It said these were a result of a general upward movement in the prices of the constituent items, such as vehicle, driving lessons and car rentals.

Investec said on its monthly CPI update that the January number was 0.3 percent above its expectation of 7.6 percent as the education index surprised on the upside, but warned that the numbers will be higher in February.

“We expect inflation to come in higher at 8.2 percent in February on the back of stronger commodity prices coupled with the recent increase in fuel prices,” Carol-Jean Harward, an investment analyst at the asset manager said.

Investec said encouragingly, the food price component (which constitutes the biggest portion of the inflation basket) was not part of the sudden escalation in consumer costs, gaining only 0.4 percent last month.

But, however, it warned that this stable performance could be contributing to some false complacency on the part of market participants, who do not seem alarmed, as yet, by the increasing trend in inflation.

“This should be a cause for concern because since December 2010, temperatures have plummeted across the globe, causing major damage to a number of food crops,” Harward said.

“The smaller crop yields are coming at a time when demand for commodities such as corn, wheat and soya beans is soaring around the world, as populations rise and demand recovers. That combination is sure to generate higher food costs in the months to come.”

She added that if both food and energy prices are removed from the mix, to get the so-called core rate of consumer price inflation, ‘we find that such costs rose by just 0.3 percent last month- a tame figure that should be somewhat reassuring to the price stability seekers’.

Motswedi Securites analyst, Garry Guma, said despite spike in inflation, the expectation is to see it falling within Central Bank’s objective in the second half of the year.

“Despite the rise in the January inflation rate, we expect inflation to fall towards the Bank of Botswana 3 to 6 percent objective range during Q2 2011 due to reduction in government expenditure, overall below-trend economic performance and weaker consumer spending following the decision by the government not to increase civil servants salaries,” he said.

However, he cautioned that a recent strike by truck drivers in South Africa might also put significant upwards pressure on inflation in the short term.

Investec is of the view that the rise in inflation number will not affect the Monetary Policy for now. Bank of Botswana is due to launch its 2011 Monetary Policy statement next week.

“Probably not much initially, as the central bank seems intent on countering any lingering threat of economic slowdown before it raises interest rates as a precaution against higher inflation,” said Harward.

“Thus, our expectation remains that the bank will keep interest rates on hold at current levels until 2012 unless the economy recovers much faster than anticipated.”

Central Bank cut rates by 50bps rate in December 2010.


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