Thursday, June 30, 2022

Inflation seen slowing in October although risks persist

When the Central Statistics Office (CSO) releases its Consumer Price Index (CPI) figures for the month of October on November 14, the numbers are likely to show a falling rate of inflation, market watchers have pointed out.

Botswana’s inflation has been going up since the beginning of the year at the back of surging oil prices that have battered the global economy. With Botswana being a victim of imported inflation, the country’s figures were second only to the hyper Zimbabwe inflation in the whole SADC region.
Gaotlhobogwe Motlaleng, a macroeconomics lecturer at the University of Botswana, says when oil, which is a major input cost goes down, “we expect prices to go down”.
“If the price of oil is decreasing, we are expecting inflation to go down. It (oil) is a major input cost on all the industries,” he noted.

During the height of the oil crisis, crude prices for a barrel touched a record high of $147 in July but, since then, the prices have collapsed by 60 percent to trade at a low of $61 a barrel on concerns of global economic slow-down.
Because of Botswana’s high fuel consumption, which weighed heavily on the basket by July this year, the rate of inflation was 15 percent, second only to Zimbabwe’s.

The collapse in crude oil prices has led to profit concerns from the oil cartel OPEC, which last week cut production a day by 1.5 million barrels a day although Motlaleng says the cut will not have a significant impact on inflation.

The macroeconomist is supported by his peers in the market who say the data for October will reflect what is going on in the crude oil market.
“With the recent decrease in fuel prices by 50 thebe across the board, we expect headline inflation to decline further in October to about 13.5%”, Investec analyst, Maungo Lebenna, wrote in her monthly CPI commentary for the month of September, adding that going forward, inflation will fall although there are upside risks in the coming months.

Two weeks ago, the government put smiles on motorists’ faces with a consecutive reduction in retail fuel prices by 50 thebe, followed by the Central Bank leaving the benchmark unchanged to watch the events unfold the following months.
“The decline in oil prices in recent times suggests that fuel inflation is likely to decrease in the coming months; however, inflation will remain above the 3-6% target band. Even so, significant risks to the inflation outlook remain.”

Lebanna added that, for once, the government had confirmed the introduction of the 30% levy on alcohol from the 1st of November in spite of the negative impact the levy would have on inflation.
She expects the levy, which has been sweetened from the previous planned to 70%, to add about three percent to the previous estimate of the November reading.

Motlaleng has praised the Bank of Botswana for not tempering with rates saying, “I don’t see why BoB would tamper with rates.”

He added that the move will boost confidence in the credit sector including the banking industry.
“Given the moderate tone adopted at the last Monetary Policy Decision meeting, we expect the Bank of Botswana to maintain the bank rate at the current level of 15.5%, at least until the end of the year,” Lebanna said of the interest rates outlook.
Investec says that following the peak in November, inflation should moderate during the first half of 2009, albeit at higher levels than previously projected.


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