Sunday, November 27, 2022

Inflation accelerates, BoB tipped to hold rates steady for now

The national year-on-year inflation rose more than expected last month, but analysts suggested the Monetary Policy Authorities will maintain the current low levels of interest rates, which is aimed at aiding economic recovery.

Statistics Botswana said on its monthly Consumer Price Index (CPI) update that transport costs pushed up the numbers by 0.6 percent from 7.9 percent in January to 8.5 percent in February.

The upwardly trending CPI was blamed on the rise in fuel prices early in the year despite other indices recording marginal increases.

Group indices were stable between January and February 2011, recording movements of less than 1.0 percent.

However, the transport group index was odd out as it recorded an increase of 2.9 percent, from 133.7 in January to 137.5 in February.

“This was due to an increase in the constituent section indices of Operation of Personal Transport, which rose by 5.3 percent,” the office said.

The increase in operation of personal transport section index was attributed to the rise in retail pump prices for both petrol and diesel by P0.55 and P0.45 per litre respectively, which were effected on the 1st February 2011.

Investec Asset Management, which had forecast February figures at 8.2 percent, said the inflation rate has now been trending upwards since last year, putting pressure on the Bank of Botswana (BoB) to raise interest rates.

“The higher than forecast February inflation number pushes our March inflation rate up to 8 percent from the previous forecast of 7.6 percent,” Carol-Jean Harward, an Investment Analyst at Investec said.

She added that the lower forecast number for March than February does not mean that the price increase will slow down in the coming months, but it is rather a reflection of base effects.

“The risk is to the upside as commodity prices are expected to remain strong, more so if tensions in the Middle East and North Africa persist,” she added.

Statistics Botswana data showed the Food & Non-Alcoholic Beverages index group moved from 158.2 to 159.1, registering an increase of 0.6 percent between January and February.

It attributed the increase to the general rise in the constituent section indices, notably, oils & fats (3.8 percent), sugar, jam, honey, chocolate & confectionery (1.3 percent) and fruit (0.9 percent).

Equally, imported tradeables inflation rate recorded an increase of 1.4 percentage point between January and February, from 9.5 to 10.9 percent.

On the other hand, the all ÔÇôtradeables inflation rate registered an increase of 0.9 of a percentage point, from 8.2 percent in January to 9.1 percent in February.

The domestic tradeables inflation rate was 6.2 percent in February, an increase of 0.3 of a percentage point from 5.9 percent in January while the non-tradeables inflation rate decreased from 7.3 percent in January to 7.2 percent in February.

The urban villages’ inflation rate was 8.4 percent in February, up by 0.9 of a percentage point from the January rate of 7.5 percent. The cities and towns’ inflation rate registered an increase of 0.7 of a percentage point from 8.8 percent in January to 9.5 percent in February.

The rural villages’ inflation rate went up by 0.2 of a percentage point from 6.4 to 6.6 percent between January and February.

“We maintain our view that the Monetary Policy Committee (MPC) will keep interest rates on hold for the rest of the year, especially with concerns over events in Middle East and North Africa disrupting the recovery pattern in most parts of the world,” Harward said.

She added that the recent tragedy in Japan adds further salt to injury. Although the higher than anticipated inflation does raise the probability of a rate hike in April, it could encumber much needed economic growth.

The rate at which inflation increases in March and April, however, will be the crucial determinants of where rates go from here.

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