Wednesday, July 24, 2024

Inflation pressure eases as BERA cuts fuel prices 

Finally, some good news on fuel retail pump prices for motorists — and by extension the economy. 

On June 20th, the Botswana Energy Regulatory Authority (BERA) decided to slash the retail pump price of unleaded petrol 93 by 22 thebe per litre while that of unleaded petrol 95 was also cut by 14 thebe per litre. The retail pump price of diesel 50ppm saw a significant 227 thebe per litre decrease in price while paraffin price also went down by over two pula (241 thebe) per litre. 

The fuel retail pump prices revision comes at a time when many households in the country have been squeezed by the combination of elevated prices and higher interest rates, forcing a lot of families to cut back. 

The fuel price effect on CPI….

BERA’s first upward adjustment of fuel prices for the year was done on the 28th of February 2023 and resulted in elevated CPI figures during March 2023. To date, BERA has adjusted fuel prices thrice, – with two downward moves made in mid-January 2023 and lately, June 2023 as well as the February upward move. 

Since the beginning of the year, Botswana’s consumer price index (CPI) has appeared ready to decline rapidly a few times only for inflation to intensify. For instance, a cooldown in consumer inflation that was registered in February 2023 was halted during March, as prices across the economy ticked up at a rate of 9.9 percent, registering a rise of 0.8 of a percentage point from February. The annual consumer price inflation had eased to 9.1 percent in February 2023, registering a drop of 0.2 of a percentage point from the January rate of 9.3 percent.

The latest official CPI figures show that during May, consumer price inflation cooled to a 24-month low of 5.7 percent reverting to the Bank of Botswana’s 3 -6 percent objective range. 

Central Bank governor, Moses Pelaelo recently told journalists in the capital Gaborone that going forward, domestic inflation will remain within the central bank’s objective range into the medium term. 

Bank of Botswana, which is responsible for ensuring price stability, has set an inflation tolerable range of 3 – 6 percent. But this range was breached in May 2021 when the inflation rate came to 6.2 percent. 

The inflation rate reached double-digit growth in January 2022, with the rate coming at 10.6 percent, and climbed to the highest level in more than 14 years after reaching 14.6 percent in August 2022. The rapid rise has mainly been caused by high fuel prices. However, data recently published by Statistics Botswana indicated that inflation cooled to a 24-month low of 5.7 percent in May 2023, reverting to the Bank of Botswana’s 3 -6 percent objective range. 

Investment analyst at Kgori Capital, Kitso Mokhurutshe said last month that while inflation is likely to fall within the central bank objective range by May, it will once again increase beyond 6 percent in the last quarter of this year, “as the base effects dissipate”.

This week, Mokhurutshe said that Inflation will continue to decline to a trough close to BoB’s 3 percent lower bound in July 2023. He predicts that it will then rise above 6 percent by the fourth quarter of 2023 (Q4:2023) before sustainably trending within the 3-6 percent range in the last quarter of next year. 

As a result, Mokhurutshe said that he does not expect any changes to the Bank of Botswana’s Monetary Policy Rate (MoPR) during 2023.

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