Wednesday, May 18, 2022

Inflation slows in June, inflationary pressures still a threat

Inflation surprised the market when it softened in June as declines in the transport index pulled down the CPI basket, but analysts have warned that the numbers will still end the year above the Bank of Botswana (BoB) target range.

Statistics Botswana data showed on Friday that national year-on-year inflation rate stood at 7.9 percent, down by 0.4 of a percentage point from 8.3 percent in May 2011.

The weakening of the numbers was mainly driven by the decline in transport index that fell to 10.1 percent year on year in June from 15.6 percent year on year in May.

The transport index constitutes about 18.9 percent towards the CPI basket.

African Alliance said there was a decline in June numbers despite a number of inflationary pressures during the month that includes a 15 percent and 30 percent electricity tariff hike for domestic consumers consuming less than 200kWh and more than 200kWh respectively.

“Further inflationary pressure is expected from rising oil prices, and ultimately fuel prices, which will be exacerbated by an impending fuel shortage as oil sector workers in South Africa continue on an indefinite industrial action,” African Alliance said on its weekly market update.

Other declines, albeit marginally were in alcoholic beverages, tobacco & narcotics, which eased to 8.2 percent y/y from 8.3 percent y/y in May, communication that dropped further to -5.4 percent y/y from -4.5 percent y/y in line with expectations following the reduction in mobile tariffs by the Botswana Telecommunication Authority on 1 May 2011.

Miscellaneous goods & services also weakened to 4.8 percent y/y in June from 5.4 percent y/y the previous months.

There was however increases in food & non-alcoholic beverages which rose to 6.7 percent y/y during the month from 6.2 percent y/y in May following increases in almost all constitute items.

Housing, water, electricity, gas & other fuels rose to 8.5 percent in June from 4.3 percent y/y in May following increases in electricity gas & other fuels as alluded to above.

Health rose to 4.6 percent y/y from 4.4 percent the previous month, while recreation & culture firmed to 11.5 percent y/y from 11.4 percent y/y in May. Other basket items were unchanged.

Motswedi Securities analysts are worried that exogenous inflationary pressures continue to be a threat to the Bank of Botswana inflation target of between 3 ÔÇô 6 percent by second quarter of 2012.

Botswana is a net importer of food and the rising food prices on the international will exert pressure on inflation going forward.

“Rising fuel prices on the international market also continue to exert more pressure on the country’s inflation outlook. Despite all these pointers, we expected the central bank to maintain a neutral monetary policy stance of keeping interest rates unchanged up to the end of this year to promote economic growth,” Motswedi Securities said.

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