Thursday, October 28, 2021

Inflation rate softens in August

The inflation rate which has been on upward swing in the past months has retreated slightly in August, though it is expected to pick as the liquor industry which has been on a lockdown announced price increases.

The annual inflation rate was 8.8 percent in August, down by 0.1 percent from the previous month’s rate. The largest upward impact on the annual inflation came from Transport (4.6 percent), Housing, Water, Electricity, Gas & Other Fuels (1.4 percent), Food & Non-Alcoholic Beverages (0.9 percent) and Miscellaneous Goods & Services(0.6 percent), Statistics Botswana said.

Botswana’s inflation rate hit the highest level in more than a decade in July, jumping to 8.9 percent, the highest level since 2009. The raging inflation rate is only expected to subside in the first half of 2022 as consumers continue to feel the effects of government decisions to fiddle with administered prices.

In August, Bank of Botswana maintained the bank rate at record lows of 3.75 percent, disclosing that the current state of the economy and the outlook for both domestic and external economic activity provide scope for maintenance of an accommodative monetary policy to support durable recovery and economic activity.

For Botswana, price stability is defined as a sustainable level of annual inflation, as measured by the consumer price index (CPI), that is within the central bank’s medium-term objective range of 3 – 6 percent.

The country has experienced a spike in consumer prices since the year began, with inflation averaging 6.7 percent in the second quarter of 2021, higher than the 1.9 percent in the second quarter of 2020, largely caused by increases in levies and taxes, the upward adjustment in administered prices and associated second-round effects.

There are currently 51 administered items out of the 400 items in the Botswana CPI basket, representing a significant weight of 32.3 percent in the basket which is supposed to mirror commonly used goods and services by consumers. Given its large portion in the CPI, changes in administered prices have had a significant influence on inflation and inflation expectations as shown by the recent surge in prices, which reflects the recent upward adjustments in value added tax (VAT) and other administered prices.

These are estimated to have added approximately 4.61 percentage points to inflation in the first half of 2021, with most of the effect expected to dissipate from the first half of 2022, consequently contributing to lower inflation in the medium term.

“However, second-round effects of the recently announced increases in administered prices pose upside risks to the inflation outlook. It is, therefore, critical for the internal consistency of macroeconomic policy design that administered prices and tax adjustments be set in view of their possible effects on inflation,” said economists at the central bank.

The country’s top brewer Kgalagadi Brewery Limited (KBL) which has been shuttered from July to August due to ban on alcohol sales, announced that it has increased prices to recover from the setback.

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