While headline inflation fell from 3.1 percent to 2.7 percent in January, the food and non-alcoholic beverages index recorded a slight rise during the same period, Consumer Price Index (CPI) data released by Statistics Botswana (SB) this week shows.
The SB data shows that the food and non alcoholic category recorded an upward trend from 0.7 percent recorded in December 2015 to 1.2 percent in January 2016. Inflation fell for several other commodity groups, including alcoholic beverages and tobacco (6.2-3.9%), furnishing, household equipment and routine maintenance (5.5-4.4%), health (6.0-3.4%), transport (5.8-6.0%) and education (6.6-3.7%). The decrease in headline inflation is said to have been driven by the transport sector with the drop in fuel prices slowing the rate of price increases. The Central Bank said this week that low domestic demand pressures and subdued foreign price developments contributed to the positive inflation outlook.
At the same time, economic experts have suggested that the rising level of unemployment in the country could be one of the contributors to the low inflation recorded by the domestic economy over the past several months. A quarterly economic review published by Stanbic Bank Botswana in December 2015 noted that disinflation in advanced economies was accompanied by high unemployment. The review, authored by lecturers in the Department of Economics at the University of Botswana draw attention to the conventional wisdom that point to a tradeoff between inflation and unemployment.
“If the tradeoff between inflation and unemployment holds for Botswana, then low inflation does not bode well for the country as it suggests that unemployment has been rising,” reads part of Stanbic Bank’s economic review.
Another interesting observation made by the UB economists is that despite the six percent salary adjustments for public sector employees implemented in April 2015, the May inflation slightly slowed to 3.1 percent. The slight decline in May 2015 inflation may indicate that producers respond with a lag to increases in administered prices and wages of public sector employees or of weaker conditions in the labour market. On the other hand, unemployment figures keeps growing every month. Although the official figures are pegged at around 20 percent, a leading economic firm, e-Consult Botswana believes that the current figures may be underestimated and could in fact be close to the 30 percent mark. At the same time, UB economics experts note that lack of up to date unemployment figures preclude the assessment of whether the low inflation is directly linked to the high unemployment in the domestic labour market.
