Consumer prices in Botswana slowed to 13.8 percent in September, down from the 14.6 percent in August, as the nation continues to grapple with rapidly increasing energy costs and high food prices.
The annual inflation rate touched record highs in August, as prices soared to the highest pace in more than 14 years. The slight retreat in the annual inflation rate for September was expected after the Botswana Energy Regulatory (BERA) reduced fuel costs in the previous month, with Bank of Botswana also hiking interest rates to curb the runaway inflation.
The increase in consumer prices has been pushed by the rise in transport and food prices, which have a large weighting in the consumer price index (CPI) – that tracks monthly changes in prices. The CPI is made up of 12 components, each with a weighting that represents a group of commonly used goods and services.
The transport group, which has the largest share of the CPI with a 23.43 percent weight, rose the most in the past six months after prices increased by 22.1 percent, and in the last 12 months, transport prices have gone up by 36.2 percent. The main contributing factor has been the increase in fuel prices, which are up by 29 percent since March and 53 percent since September 2021.
The housing, water, electricity, gas and other fuels group, which constitutes 17.45 percent of the CPI, has registered price increases of 4.4 percent from March and 5.6 percent in the past 12 months. Notable increases were recorded in rentals and building materials.
The third largest component of the CPI, food and non-alcoholic beverages, has seen prices rise by 14.8 percent in the past 12 months, and 12.3 percent in the last six months. The increase in food prices has been on the back of steep increases in oils and fats, up by 34.7 percent from March and by 44 percent since September 2021. The restriction on import of certain vegetables, causing shortages, led to vegetable prices jumping by 19.7 percent in the last six months, and in a yearly period, the prices are up by 21.4 percent. Bread and cereals rose by 18.2 percent since September 2021 and by 17.6 percent in the past six months.
The core inflation, which excludes regulated prices, as well as food and energy prices, was eight percent in September, matching the same pace as August rate. Core inflation rate averaged 4.68 percent from 2011 until 2022, and reached the all-time high in August, a sign that the increase in prices is widespread and rapidly rising even after excluding prices of volatility goods and services.
The central bank’s monetary policy committee (MPC) this week decided to hold the benchmark interest rate at 2.65 percent during its October meeting, a change from its tight monetary policy of raising interest rates to tackle inflation, which is two times greater than its preferred threshold of 3 – 6 percent objective range.
After inflation averaged 10.4 percent in the first quarter of 2022, the central bank raised the monetary policy rate in April by 51 basis points from the prevailing 1.14 to 1.65 percent. The rise could not stem the tide, as inflation averaged 11.4 percent in the second quarter, forcing the central bank to increase the interest rate by 50 basis points to 2.15 percent during the MPC meeting in June. After inflation hit the 14 year high of 14.6 percent in August, the central bank responded by hiking the benchmark rate by another 50 basis points to bring it to 2.65 percent in its August meeting.
Faced by rising interest rates that are yet to reign in the runaway inflation, household disposable incomes and budgets have been squeezed, with concerns that a decline consumer spending will cause aggregate demand to fall, thus slowing economic growth. In fact, the International Monetary Fund (IMF) this month projected that Botswana’s economy will grow by 4.3 percent, down from the initial forecasted 4.7 percent growth. Botswana’s ministry of finance also had to revise its economic growth projections, anticipating a growth rate of 4.2 percent instead of the 4.3 percent forecast.
