Wednesday, April 24, 2024

Food inflation big threat going forward

The national year-on-year inflation moved up slightly in October as housing, clothing and footwear indexes went up amid fresh fears that food might push figures through the roof going forward.

Central Statistics Office (CSO) said this week the inflation rate stood at 7.2 percent last month up by 0.2 of a percentage point from 7.0 percent in September.

Investec said the lower than expected October inflation number has pulled down its end-of-year inflation forecast to 7.6 percent from a previous 8 percent.

“We still expect inflation to climb higher in the coming months as a result of upward pressure on food and fuel (transport) prices given the combination of higher global commodity prices and a weaker pula,” Carol-Jean Harward, an Investment Analyst, at Investec Asset Management said.

The biggest contributors to the rise in inflation from 7 percent in September were housing inflation and clothing and footwear prices.

Housing inflation rose to 6.7 percent year on year from 6.4 percent, while the clothing and footwear index rose from 7.7 percent in September to 8.7 percent year on year in October.

“In line with the Bank of Botswana (BoB) forecast, we expect the inflation rate to decline to levels near the upper ranges of the 3-6 percent band in the second half of 2011,” said Harward.

“We anticipate that the MPC will continue to maintain their accommodative monetary stance until the second half of 2011, as the uncertainty in the global markets lingers and also as a support system to the domestic economic recovery.”

CSO stated that the urban villages’ inflation rate moved from 6.4 percent in September to 6.8 percent in October, showing an increase of 0.4 percentage point while the rural villages’ inflation rate was 5.9 percent in October, up by 0.3 of a percentage point on the September rate of 5.6 percent.

On the other hand, the towns and cities’ inflation rate was 8.0 percent, the same rate as in September.

Despite the uptick in inflation, the Monetary Policy Committee (MPC) kept the bank rate unchanged at 10 percent for the third consecutive rate-setting session, which was in line with Investec forecast.

“They remain concerned about the global and domestic economic recovery,” Harward added.

The pass-through effect of a weaker pula versus its major trading partners is evident in the higher clothing and footwear prices, as it becomes more costly to import. It is also demonstrated by a higher All Tradables inflation rate, which increased by 0.2 percent to 7.3 percent in October mainly as a result of an increase in imported Tradables inflation.

In October 2010, the national Consumer Price Index was 139.7, up by 0.2 percent on the September level of 139.4. The urban villages’ index recorded an increase of 0.3 percent, from 138.7 to 139.1 between the two months.

The towns and cities’ index registered an increase of 0.2 percent between September and October, from 138.6 to 138.8. The rural villages’ index was 143.0, the same level as in September.

All group indices showed a stable movement between September and October, except for the two which recorded at least 1.0 percent, namely Restaurants & Hotels (1.1 percent) and Clothing & Footwear (1.0 percent).

The Restaurants & Hotels group index recorded an increase of 1.1 percent from 168.8 in September to 170.6 in October. There was a general price increase as indicated by increases in the constituent section indices of Restaurants, Cafes & the Like (1.1 percent) and Accommodation Services (0.9 percent).

The Clothing & Footwear group index was 126.3 in October, up by 1.0 percent on the September level of 125.0. The increase was a result of the constituent section indices of Clothing (2.2 percent) and Footwear (0.3 percent).

The Alcohol & Tobacco group index rose by 0.3 percent, from 179.1 in September to 179.7 in October. This was due to increase of constituent section index of tobacco by 2.5 percent.


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